ECB Interest Rate Cut Expected

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 adopt fiscal easing to bolster their economies.

In other words, the ECB’s impending easing could further contribute to global liquidity easing, providing bullish signals for risk assets, including cryptocurrencies.

> “Overall, liquidity conditions are supportive and rising, keeping risk and crypto pushing higher, despite this recent correction on growth concerns,” said the founders of the newsletter service LondonCryptoclub in Thursday’s edition.

Volatile Bond Markets

The European Union’s headline inflation remains below the central bank’s target of 2%, raising concerns about the impending rate cut and its potential impact on European bond markets.

Germany’s 10-year bund has climbed to 2.8%, its highest since 2011, pricing in more supply following Germany’s fiscal stimulus announcement. This spike has narrowed the U.S.-German yield spread in favor of the euro, leading to a decline in the dollar index. Coupled with tariff threats, the DXY index is falling faster than during President Trump’s first term.

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

Volatile bond markets can lead to financial tightening, compelling investors to reduce exposure to riskier assets.