Goldman Sachs: Euro Faces Rate Cuts Amid U.S. Tariffs and Trade Tensions

In a recent analysis, a Goldman Sachs economist pointed out that the implementation of new U.S. tariffs significantly heightens the odds of the European Central Bank (ECB) opting for interest rate reductions this fiscal year, particularly hinting at a potential cut in April. The report highlights that the strengthening of the euro, coupled with increasingly aggressive tariffs on imports from East Asia and beyond, could pose substantial downside risks to eurozone inflation. This economic climate suggests that the ECB may enact up to three additional rate cuts, projecting a deposit rate decline to 1.75% by July. Furthermore, liquidity constraints have tightened following the tariff imposition. The U.S. administration’s stern stance on potential foreign retaliation raises concerns over the risk of persistent trade conflicts, potentially steering the eurozone towards a technical recession. Presently, Goldman Sachs anticipates a modest 0.8% growth rate for the eurozone by 2025.