The European Central Bank (ECB) is expected to decide on interest rate cuts as traders bet on easing policy from the Federal Reserve (Fed).
A resumption of the rate cut trend could ease financial conditions, sending optimistic signals for risk assets including Bitcoin.
James Van Straten, Omkar Godbole | Edited by Omkar Godbole , Mar 6, 2025, 9:35 AM UTC
What you need to know:
- The European Central Bank (ECB) is expected to cut interest rates to 2.65% despite a major sell-off in European debt.
- This upcoming easing could contribute to the ongoing tightening of global liquidity, potentially sending bullish signals to risk assets including cryptocurrencies.
The European Central Bank (ECB) is expected to cut its benchmark interest rate to 2.65% on Thursday, continuing easing from a peak of 4.5% amid heightened volatility in bond markets.
The expected easing comes as markets are reconsidering at least three Fed rate cuts in 2025, while Germany and China are choosing a path of fiscal easing to support their economies.
In other words, the upcoming ECB easing could further exacerbate the ongoing tightening of global liquidity, sending bullish signals to risk assets including cryptocurrencies.
“Overall, liquidity conditions are favorable and improving, supporting risk and cryptocurrencies despite the recent correction in growth concerns,” the founders of the LondonCryptoclub newsletter said in Thursday’s issue.
Volatile bond markets
Inflation in the European Union remains below the central bank's 2% target, raising concerns about an upcoming interest rate cut and its impact on European bond markets.
German 10-year bonds rose to 2.8%, the highest since 2011, on increased supply after Germany announced fiscal stimulus. The jump narrowed the U.S.-Germany yield spread in favor of the euro, dragging the dollar index lower. That, coupled with the threat of tariffs, sent the DXY index falling faster than it did in Trump’s first term.
Yields on UK bonds also exceeded those on US bonds. Meanwhile, the yield on Japan's 10-year bonds has risen above 1.5%, a 17-year high, as the Bank of Japan struggles to control inflation after three interest rate hikes following nearly a decade of negative rates.
Volatility in bond markets could lead to tighter financial conditions, forcing investors to reduce their exposure to riskier assets.
