Market Highlight 18.04.2025

The European Central Bank (ECB) announced an interest rate cut overnight to offset the economic impacts stemming from U.S tariffs. The move drew the attention of U.S President Donald Trump, who had previously urged the Federal Reserve Chairman to follow the ECB’s lead by lowering interest rates. The ECB reduced its key policy rate by 25 basis points, from 2,5% to 2,25%. This marks the seventh rate cut in the past eight meetings, bringing the benchmark rate to its lowest level since early 2023. The intensification of global trade tensions is expected to weigh heavily on European exporters, a major driver of the region’s economy.

While the ECB began its easing cycle in June last year and has since lowered rates by a cumulative 1,75%, the Federal Reserve only started cutting rates in September 2024, reducing its benchmark rate by 1% and keeping it unchanged since the December meeting. The divergence in the pace of rate cuts reflects Europe’s significantly weaker growth compared to the U.S in recent years, hurt by slowing Chinese demand - one of Europe’s key export markets - and the ongoing impact of the war in Ukraine. Although tariffs are expected to dampen growth in both economies, the U.S appears more vulnerable to inflationary pressures from import taxes, whereas the ECB stated yesterday that inflationary pressures in Europe are cooling rapidly. The ECB is forecasted to implement 3 additional rate cuts this year, while the euro continues its strong appreciation against the USD (+9,83% year-to-date), with a target level of $1,20 anticipated in the first half of 2025.

In the domestic market, the USD/VND interbank exchange rate edged closer to the 25.900 mark on Wednesday, primarily supported by heightened foreign currency demand during the local peak payment season. With U.S markets closed for a holiday today, the exchange rate is expected to maintain a slight upward trend, trading within the 25.850 - 25.950 range.

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