In the past nine interest rate cut cycles, eight have been led by the Federal Reserve System (Fed) of the United States, with the European Central Bank (ECB) often following suit. However, the current global financial situation appears to be slightly different, especially considering that the ECB has hinted several times at signs of initiating its first rate cut in June, suggesting that it may start the rate cut cycle before the Fed.

ECB President Christine Lagarde recently pointed out that the rapid increase in consumer prices has now been clearly contained, hence expressing the possibility of implementing a rate cut next month. Lagarde stated, "If the data we receive continues to reinforce our confidence for inflation rates to hit 2% in the medium term, then it's very likely that we will take action on June 6." She further emphasized that inflation has been effectively controlled and that predictions for inflation for the next two years, even if they haven't fully met the target, are very close.

Following this, ECB governing council member and Bank of France Governor Francois Villeroy de Galhau also expressed confidence that current inflation has slowed down enough to justify a rate cut in June, while cautioning the market against overinterpreting the latest wage data. Published data shows that at the start of 2024, wage growth in the eurozone has not slowed down, which could lead to doubts about expectations for a decline in price increases. However, Villeroy mentioned that this phenomenon seems more like a one-off event, especially in eurozone countries other than Germany, where wage growth has significantly decelerated.

ECB Vice-President Luis de Guindos also agreed with the above perspectives, believing that under the current circumstances, a rate cut of 25 basis points next month seems to be a reasonable decision. De Guindos stressed that in the upcoming meeting, the ECB will maintain high transparency in its decision-making and will support this rate cut decision with a cautious attitude.

It is worth noting that the ECB is not the first central bank of a developed country to cut rates before the Fed, as the Swiss National Bank and the Swedish Riksbank have already started rate cutting measures. Goldman Sachs analyst Cosimo Codacci-Pisanelli, while analyzing this phenomenon, pointed out that the ECB often follows the Fed in cutting rates because premature rate cuts might lead to depreciation of the national currency, pushing up the prices of imported goods and services, and risking a resurgence of inflation.

However, the current high-interest-rate environment has made the economic prospects of European countries weaker, and there is reason to believe that countries where inflation has been effectively controlled, if they continue to wait for the Fed, may cause further negative impacts on economic growth. Regarding the future direction of interest rates, the ECB has made no specific commitments but emphasized that decisions must be based on data. Lagarde clarified that the path to the next interest rate adjustment depends on the collective decision of the governing council, and this decision is not easy to predict.

In the current economic environment filled with uncertainties, the market has many speculations about potential rate cut actions. Although the total number of rate cuts and their extent are still undecided, the latest data already shows some positive signs in the eurozone economy. Reportedly, the eurozone's private sector business activity has climbed to the highest level in a year, which may indicate a solid and robust economic recovery in the region.

The recently released data show that the Eurozone Composite Purchasing Managers' Index (PMI) for May rose to 52.3, not only exceeding analysts' expectations but also remaining above the 50-point mark for the third consecutive month, indicating economic expansion. Given this, the money market has adjusted the expected extent of interest rate cuts by the European Central Bank within the year. The market currently expects the European Central Bank to cut interest rates by approximately 60 basis points, which is roughly equivalent to two separate cuts of 25 basis points each; meanwhile, there is about a 40% chance that interest rates will be cut three times within the year, whereas last week, the market was almost certain the European Central Bank would cut rates three times within the year.

Christophe Boucher, the chief investment officer from ING Bank, pointed out in a report that with the growth trends of the two major economies of Europe and America gradually balancing out, the future interest rate decision path of the European Central Bank is very likely to align with the Federal Reserve System (Fed) of North America. That is to say, although the European Central Bank is very likely to choose to cut interest rates at the next meeting in early June, considering the increasingly active economic activity in the Eurozone, the bank may keep interest rates unchanged at the meeting in July.