Citigroup warns against overconfidence in aggressive ECB rate cuts for 2025

Citigroup Inc. has cautioned traders against expecting swift and aggressive rate cuts from the European Central Bank (ECB) in 2025, suggesting that market projections may be overly optimistic.

Current market expectations foresee rate reductions at every ECB meeting through June 2025, with an additional cut anticipated later in the year. However, Jamie Searle, a strategist at Citigroup, argues that this outlook fails to account for potential economic disruptions, particularly the impact of trade tariffs that US President-elect Donald Trump might impose on the eurozone.

Searle predicts that such tariffs could intensify the eurozone’s economic challenges, potentially compelling the ECB to adopt a more aggressive easing policy in the latter half of 2025.

To align with this view, he recommends a strategic trade: selling June Euribor futures and buying December 2025 contracts. This approach could prove profitable if rate-cut expectations shift toward the second half of the year.

While markets currently expect the ECB’s deposit rate to fall to 1.75 per cent by the end of 2025, Citigroup economists forecast a more significant drop to 1.5%. In the near term, traders are also anticipating the possibility of a half-point cut at the ECB’s next meeting.

Attribution: Bloomberg

Subediting: Y.Yasser