The ECB's decision on interest rates came as no surprise. The key deposit rate in the Eurozone is now reduced to 3,00 percent from the previous 3,25 percent.

With the SNB lowering its key interest rate by 50 basis points (bp) earlier in the day, the interest rate differential has now increased to 2,5 percentage points from the previous 2,25 percentage points.

Euro Strengthens Against The Franc

This is also reflected in the exchange rate reaction. In the morning, the euro briefly gained nearly 0,6 percent to 0,934 francs. Following the ECB's decision, the gain narrowed to 0,4 percent, with the euro trading at 0,9316 francs.

The inflation rate in the Eurozone was 2,3 percent in November, showing a slight uptick. The central bank's medium-term target is an annual inflation rate of 2,0 percent.

Particularly, the economic development is being weighed down by Germany’s economy and its struggling industrial sector. Looking ahead, potential trade conflicts are seen as a significant risk. The designated U.S. President Trump has announced high tariffs on imports from Europe. The European Union might respond with countermeasures.

In the Eurozone, the wage-price spiral is spinning more strongly compared to Switzerland. Additionally, tariffs could drive up the prices of imported goods.

Lower Growth Expected

The GDP forecast has been revised downward. For the current year, ECB economists now expect growth of only 0,7 percent, down from the 0,9 percent projected in June. Weaker growth is also forecasted for 2025 (+1,1 percent) and 2026 (+1,4 percent).

The ECB first cut rates in June and has now also opted for the smaller step in its fourth rate.