Financial encyclopedia

The market expects that the European Central Bank will announce a rate cut at the monetary policy meeting on Thursday (6th), which will lead the euro zone to a different policy path from the United States, and the global interest rate path or differences will have some important economic impacts:

fluctuations in exchange

Interest rate cuts in the euro zone will devalue the euro against the US dollar, because lower interest rates reduce investors' demand for the euro. The relative appreciation of the dollar may make American goods more expensive for countries that use the dollar for international trade.

capital flow

Investors will tend to transfer funds from the euro zone with lower interest rates to the United States with higher interest rates to obtain higher returns. This will lead to capital outflow from the euro zone, while the United States will attract more foreign capital.

trade balance

The depreciation of the euro makes the export goods of the euro zone relatively cheap, which may enhance its export competitiveness. On the contrary, American exports have become relatively expensive and may weaken American exports.

Inflation and economic growth

Interest rate cuts in the euro zone may trigger the risk of rising inflation. If the United States maintains a high interest rate, it may curb inflation, but it may also slow down economic growth.

Global market impact

Global markets will pay close attention to these policy differences, because they will affect global capital flows and trade patterns. The change of investors' risk preference will affect the performance of global stock market and bond market.