European Central Bank leaves rates unchanged as economy weathers Trump's tariffs

Core Points - The European Central Bank (ECB) has decided to keep interest rates unchanged at 2% as inflation is under control and the economy is performing better than expected despite U.S. tariffs [1][2] - The focus has shifted to the fiscal crisis in France, with concerns about the country's deficit and political situation potentially impacting market stability [2][7] - Eurozone inflation was reported at 2.1% in August, aligning with the ECB's target, which reduces the urgency for rate changes [6] Economic Performance - The Eurozone experienced a modest growth of 0.1% in the second quarter, indicating resilience against recession despite tariff disruptions [3] - The S&P Global purchasing managers' index stood at 51 in August, signaling economic expansion [3] Trade Relations - The EU negotiated a 15% ceiling on U.S. tariffs on European goods, providing some certainty in trade relations despite higher costs [4] - ECB President Christine Lagarde noted that trade uncertainty has diminished, which could positively influence economic conditions [4] Monetary Policy Context - The ECB's deposit rate influences overall borrowing costs, with previous rate hikes aimed at combating inflation from 2021 to 2023 [5] - Analysts suggest that another rate cut may be possible in the coming months if economic conditions warrant it [6] Fiscal Concerns - The French government's deficit was reported at 5.8% of GDP last year, raising borrowing costs in the bond market due to political gridlock [7] - The ECB may consider intervening to purchase French bonds if market panic escalates, but only if France adheres to EU debt rules [7]