Citigroup: Betting on the European Central Bank's interest rate cuts is too aggressive, may pause rate cuts by mid-next year

According to the Zhitong Finance APP, Citigroup stated that traders should bet on a slowdown in the European Central Bank's interest rate cuts next year, and noted that the market's bets on rapid rate cuts by the European Central Bank have become somewhat excessive.

The money market currently expects the European Central Bank to cut rates at every meeting before June and to cut rates again in the second half of 2025. Jamie Searle from Citigroup stated that the opportunity to bet on this position should not be missed, especially if U.S. President Donald Trump imposes trade tariffs on the region.

He believes that tariffs will inflict pain on an already struggling economy, potentially requiring the European Central Bank to adopt more aggressive policies in the second half of 2025 than the market currently anticipates.

In a client report, he stated: "The current expectation for the European Central Bank to pause rate cuts around mid-year roughly coincides with the timing of the maximum impact that Trump's tariff measures may have."

Searle suggested selling futures linked to the three-month Euribor financing rate expiring in June and buying contracts expiring in December 2025, as this approach would profit if traders push back easing expectations to later this year.

Currently, the money market is betting on a rate cut, expecting a half-percentage point cut this week. They anticipate that deposit rates will reach 1.75% by the end of next year. In contrast, economists at Bank of America predict that policymakers will ultimately have to lower it to 1.5%