ECB Expected to Cut Interest Rates as Traders Pile Into Fed Easing Bets

The European Central Bank (ECB) is expected to cut interest rates on Thursday to 2.65%, continuing its easing from a 4.5% peak amid increased volatility in bond markets.

The expected easing comes as markets reprice at least three Fed rate cuts for 2025 and Germany and China take the fiscal easing route to shore up their respective economies.

In other words, the ECB's impending easing could only add to the ongoing global liquidity easing, offering bullish cues to risk assets, including cryptocurrencies.

"Overall, liquidity conditions are supportive and rising, to keep risk and crypto pushing higher, despite this recent correction on growth concerns," founders of the newsletter service LondonCryptoclub said in Thursday's edition.

Volatile bond markets

The European Union's headline inflation is still not at the central bank's target of 2%, which raises concerns about the impending rate cut and its impact on the European bond markets.

Germany’s 10-year bund has climbed to 2.8%, its highest since 2011, pricing in more supply in the wake of Germany's fiscal stimulus announcement. The spike has narrowed the U.S.-German yield spread in favor of the euro, driving the dollar index lower. That, coupled with the tariff threat, has the DXY index falling faster than in President Trump's first term.

The U.K. bond yields have also topped those of the U.S. Meanwhile, Japan’s 10-year bond has surpassed 1.5%, a 17-year high, as the Bank of Japan struggles to rein in inflation after three rate hikes after almost ten years of negative interest rates.

Volatile bond markets can cause financial tightening, forcing investors to scale back exposure to riskier assets.