The European Central Bank (ECB) has halted interest rate cuts, calming the situation on this front. Interest rates are expected to remain at this level for an extended period.
The ECB has lowered the deposit rate from 4% to 2% since 2024. This reduction is also reflected in the interest rates banks charge for their loans, albeit with a slight delay. As a result, financing costs for businesses have become more favorable. The current stability makes it easier to factor these costs into business operations.
Interest rate stability also means that inflation is well-controlled. This means that key cost items like labor and the purchase of assets remain stable. This brings stability to the cost side, after several years of sharp cost increases.
Financial institutions are anticipating stable interest rates in the European Union for the coming months. Some even anticipate no interest rate cuts in the European Union before the end of next year. This means that the main interest rate on which loans are based will remain at 2% a year from now. The main refinancing rate has been 2,15% since June.
In that respect, interest rates in the United States are expected to fall significantly. US President Donald Trump is increasing the pressure to persuade the Fed – the US equivalent of the ECB – to lower interest rates. Although political influence on interest rate decisions is undesirable, Trump appears to be getting his way.
Several cuts are expected in the coming months. Whether a new cut will be implemented at the end of this month remains to be seen. As long as the US government remains closed, there are no macroeconomic data on which to base a new rate cut.
Interest rates in the US down
Nevertheless, market participants currently expect US interest rates to drop by a quarter of a percentage point at the end of this month. Longer-term US interest rates are certain to continue falling. Some are projecting a cut to 3% by the end of next year. Currently, interest rates are still at 4 to 4,25%.
The falling interest rates are also accompanied by a falling dollar exchange rate. The dollar has already weakened considerably this year, but this is expected to continue in the coming period. This means the euro will strengthen even further. Since July, the euro's value has fluctuated between $1,16 and $1,18. This is despite the fact that parity wasn't far off at the beginning of this year, with an exchange rate of $1,02 to $1,04.
The stronger value of the euro is negatively impacting export opportunities for companies in the European Union. This is in addition to the trade problems caused by import tariffs. However, this has been going on for several months, meaning that sales are slowly but surely adjusting to the new situation.