Goldman, J.P. Morgan scale back ECB rate cut views on resilient economy, potential EU-US deal

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(Reuters) -Goldman Sachs and J.P. Morgan downsized their expectations for further rate cuts by the European Central Bank a day after the central bank kept rates steady, pointing to a resilient economy and hopes that a European Union-U.S. tariff deal was on the cards.

In notes dated July 24, Goldman said it no longer expects the ECB to deliver a rate cut this year, while J.P. Morgan has pushed its rate-cut forecast to October from September previously.

On Thursday, the ECB held policy rates unchanged at 2% after having cut interest rates eight times since June 2024.

“We are in this wait-and-watch situation,” ECB President Christine Lagarde told a press conference, adding that the economy was now in a “good place”.

Lagarde’s comments suggest “that the Governing Council will likely hold rates unless the outlook deteriorates materially,” analysts at Goldman Sachs wrote.

The outcome of EU-U.S. trade talks remains uncertain, but two diplomats with inside information say a deal that includes a broad 15% tariff on EU goods is likely.

Earlier this month, Trump had threatened to impose 30% tariffs on EU imports starting August 1.

On the other hand, Bank of America, Barclays, Citigroup, Deutsche Bank and Morgan Stanley have reiterated their expectations for a September rate cut, though some of them warned of risks to their calls.

“The risks to that view(a September rate cut) have clearly increased,” analysts at Morgan Stanley said in a note. “In case data were to come in stronger than we expect, we think the ECB could extent the current hold into December.”

Money markets show traders are unsure about another ECB rate cut this year, attaching about a 30% chance of a drop below the current 2% level by the end of December.

(Reporting by Siddarth S and Akriti Shah in Bengaluru; Editing by Ronojoy Mazumdar)