The European Central Bank is about to cut interest rates. How will the EUR/CNY exchange rate evolve?

The ECB's interest rate decision on June 5th is highly anticipated. Amid the gradual decline in inflation and changes in the trade environment, the market broadly expects the ECB to continue its easing policy. According to the latest data from LSEG, traders have fully priced in a 25 basis point rate cut, with deposit rates expected to decrease from the current level to around 2%.

It is noteworthy that the ECB has implemented seven rate cuts over the past 12 months, reflecting its supportive stance toward economic growth. The latest May harmonized CPI preliminary year-over-year figure is 1.9%, the first time in nearly eight months that it has fallen below the ECB's 2% inflation target, providing support for further policy adjustments.

Market consensus indicates that, besides this June rate cut, there will be at least one more rate cut opportunity within the year. Analysts expect the ECB deposit rate to stabilize around 1.75% by the end of the year, suggesting that the easing cycle is far from over.

**Exchange Rate Trends Are Influenced by Multiple Factors**

Does a rate cut necessarily lead to euro depreciation? The view of Uxin Bank is worth considering — in the context of a generally weak US dollar, a simple rate cut by the ECB is unlikely to change the resilience of the euro. In fact, the market has already priced in rate cuts, and EUR/USD is expected to fluctuate within the 1.10-1.15 dollar range. Investors buying on dips will create price support.

Danske Bank analysts further pointed out that the US dollar needs significant improvement in US economic data to reverse its downward trend. Until there is clear positive momentum in US economic data, the euro against the dollar still has room to rise.

**Implications for EUR/CNY Exchange Rate**

From a broader perspective, the euro's strength will also indirectly impact the EUR/CNY exchange rate. On one hand, the ECB's rate cut cycle will reinforce expectations of a weakening euro, but the offsetting effect of a weak US dollar is stronger; on the other hand, the EUR/CNY rate ultimately depends on the relative strength of the two economies. Investors should closely monitor the details of the June decision and subsequent economic data releases to dynamically adjust their outlook on the EUR/CNY exchange rate.