• UBS revises its ECB rate cut forecast, now expecting a 25 bps reduction on September 11 instead of July.
  • Extended US-EU trade talks have introduced policy uncertainty, prompting the delay.
  • The September cut is anticipated to be the final move in the ECB’s current easing cycle.

A Shift in Monetary Policy Expectations

UBS has pushed back its forecast for the European Central Bank’s first rate cut, now predicting a 25 basis-point reduction will occur on September 11 rather than at this week’s July meeting. The bank cited prolonged US-EU trade negotiations as a key factor, noting the talks have clouded the economic outlook and increased caution among policymakers.

"The extended trade discussions have introduced enough uncertainty to warrant a delay," said a UBS strategist familiar with the matter. "But we still see September as the likely pivot point, with this being the last cut for the foreseeable future."

Market Implications

The revision aligns with a broader trend of central banks delaying policy easing amid lingering geopolitical and trade risks. While eurozone credit conditions have eased slightly, loan demand remains soft, according to recent ECB surveys. A September cut could provide a late-year boost to borrowing activity, but the window for further stimulus appears to be closing.

UBS’s own financial resilience—evidenced by its $1.7 billion Q1 net profit and 11.3% CET1 ratio—positions it to navigate tighter-for-longer conditions. Still, the delay may pressure margins for lenders if deposit rates stay elevated.

What’s Next?

All eyes now turn to the ECB’s September meeting, where policymakers will weigh whether trade tensions have sufficiently cooled to justify easing. If UBS’s forecast holds, it would mark the end of an era for post-pandemic monetary accommodation in Europe.