The euro is rising ahead of a significant event. The European Central Bank is expected to cut interest rates this Thursday before increasingly complex inflation prospects risk bringing internal disagreements to the forefront.

As price risks have diminished, officials have cut rates seven times over the past year without major friction within the 26-member Governing Council. An eighth cut is expected on Thursday, bringing the deposit rate to 2%.

However, while some would prefer this to be the bottom — fearing overspending by European governments — others want deeper cuts to support fragile economic growth in their countries.

The main sticking point is Donald Trump's tariffs, particularly their chain reaction effect on eurozone prices. The ECB is working on various scenarios to better understand what may come next, but there is little confidence in any specific outcome.

As a result, the ECB is transitioning from fighting elevated inflation to a phase characterized by unpredictability, similar to what was seen during the Covid period. A similar situation is now unfolding within the U.S. Federal Reserve. This means central banks must be prepared for inflation risks in both directions.

It is quite possible that the macroeconomic outlook justifies short-term cuts to support the economy during this period of uncertainty, but higher rates may be necessary later if other policy levers, such as fiscal measures, come into play. At the same time, it will be important for the ECB to remain vigilant against the risk of a return to too-low inflation.

With prices returning to the 2% target, investors still believe there will be another rate cut after this week, but they are uncertain when exactly it will occur. Economists in a recent survey were more confident, predicting cuts in June and September, bringing the final rate to 1.75%.

However, as noted earlier, Trump's actions could alter these expectations. Although most EU goods are currently subject to a 10% U.S. tariff, this could rise to 50% in July. The ECB's scenario analysis, expected to be presented in the quarterly forecast, highlights this uncertainty.

The evolution of prices will depend on potential retaliatory measures from Brussels and how U.S.-China relations unfold. In the long term, European spending on defense and infrastructure, disrupted supply chains, and an aging workforce could fuel inflationary pressures.

Against this backdrop, Executive Board member Isabel Schnabel warned against further easing, stating that the ECB is well-positioned to assess the likely future evolution of the economy and act as needed. Dutch central bank head Klaas Knot and Bundesbank President Joachim Nagel also warned that the medium-term inflation outlook remains unclear.

But one thing is already certain: from now on, each additional cut will be much more difficult. Resistance will grow, and everything will depend on the data. This will lead to complicated discussions after the summer.

Technical Outlook for EUR/USD:

Buyers now need to aim to capture the 1.1420 level. Only this will allow a test of 1.1460. From there, a move to 1.1490 is possible, but achieving it without the support of major players will be challenging. The furthest target is the 1.1520 high. If the pair declines, serious buyer activity is only expected around 1.1400. If no buyers are found there, it would be better to wait for a dip to 1.1380 or open long positions from 1.1347.

Technical Outlook for GBP/USD:

Pound buyers need to target the nearest resistance at 1.3555. Only then can they aim for 1.3602, above which a breakout will be difficult. The furthest target is the 1.3640 level. If the pair falls, bears will attempt to take control at 1.3505. A break of this range would seriously damage the bulls' positions and push GBP/USD down toward 1.3480, with a prospect of reaching 1.3450.