Synopsis:

Goldman Sachs expects the ECB to cut rates by 25bps at tomorrow’s June meeting and warns that downward revisions to the ECB’s projections may pose a short-term tactical risk for the euro. However, Goldman remains strategically bullish on the EUR as a preferred expression of expected USD weakness in the months ahead.

Key Points:

• ECB Cut Expected: A 25bp rate cut is anticipated at the June meeting.

• Projection Revisions: Goldman sees risk that lower growth and inflation forecasts from the ECB staff could weigh on EUR sentiment in the short term.

• Terminal Rate Outlook: Market pricing for additional easing is light and aligns with Goldman’s call for two more cuts to a 1.75% terminal rate.

• EUR as Strategic Long: Despite near-term risks, Goldman sees the euro as a preferred vehicle to position for a structurally weaker USD.

Conclusion:

Goldman expects a dovish tone from the ECB and sees downside risk to EUR around revised projections. Nonetheless, they maintain a medium-term bullish stance on EUR/USD as part of their broader USD bearish thesis.