Originally Posted 20 August 2025 – Monthly Cash Review – EUR
Policy
The European Central Bank (ECB) Governing Council (GC) maintained the deposit rate at 2.00% at its meeting on 24 July, a decision that was in line with market expectations.
Data
• Headline inflation for July was unchanged at 2.0%, marginally above consensus expectations of 1.9%. Energy inflation was little changed, while food inflation edged up. Core inflation was also stable at 2.3%. Services inflation declined from 3.3% to 3.1%.
• Eurozone GDP growth for Q2 2025 was reported at 0.1%, which was slightly better than the consensus forecast of zero growth.
• The eurozone composite purchasing managers’ index (PMI) for July edged up to 51.0 from 50.6 in June, exceeding consensus expectations of 50.7. The improvement was driven by a 0.7 increase in the services PMI to 51.2. Readings above 50 are indicative of growing activity.
• The eurozone unemployment rate for June remained at 6.2%.
Outlook
Following the ECB’s decision to leave its deposit rate unchanged, the bank presented no guidance on future rate decisions. The ECB published a short statement which said domestic price pressures “have continued to ease, with wages growing more slowly” and the economy was proving resilient in a challenging environment but caveated this by acknowledging that the outlook “remains exceptionally uncertain”. At the post-meeting press conference, ECB President Christine Lagarde noted that activity was “developing a little better than expected” and the resilience of the economy early this year was not solely due to tariff front-running but also reflected strengthening consumption and investment. Lagarde noted that the ECB forecast was for inflation to be below 2% next year. The ECB will remain data-driven in its decision-making process.
Economic data release in the month showed the eurozone economy holding up relatively well in the face of tariff uncertainty. Both headline and core rates were unchanged and broadly in line with the ECB’s forecasts. GDP data suggests that activity has been more resilient than expected. Front-running of the expected US tariffs gave the economy a boost in Q1 2025, and the impact of tariff uncertainty has been less than initially anticipated. The July Economic Sentiment Indicator from the European Commission was higher than expected, rising from 94.2 in June to a five-month high of 95.8 — although this was taken prior to the EU-US trade deal announcement. However, July’s composite PMI points to weak GDP growth at the start of Q3 2025. One aspect which will provide comfort to the ECB is that services price pressures are continuing to ease.
On 27 July, EC President Ursula von der Leyen and US President Donald Trump announced a trade agreement. Under the deal, the US will apply a 15% tariff on a majority of EU goods coming into the country, including cars and car parts, while tariffs on certain strategic products (aircraft, certain chemicals, drugs and generics, and natural resources) should be set back to pre-January 2025 levels. Many aspects are unknown as the introduction of the agreement has been delayed until 8 August. The agreement is currently not legally binding, and details require further negotiation. There are signs of differing interpretations around some aspects of the proposed deal. The agreement has been criticised by some European governments as being too punitive and having differing impacts on countries. The initial projection is that this outcome may reduce eurozone GDP by 0.2%.
The market implied rate for September finished July at 1.90%, with expectations for a rate cut dissipating after the ECB meeting. It seems likely that policymakers will adopt a wait-and-see approach going forward, but there is arguably little in the economic data to suggest that the ECB will resume its easing cycle. The trade tariff deal, while marginally higher, was close to the 10% tariff assumed in the ECB’s baseline scenario in June, meaning that major downside risks have been avoided. The implied rates for December 2025 and March 2026 were 1.80% and 1.75%, respectively, indicating that the market is expecting one interest rate cut by March 2026.
Past performance is not indicative of future results
Forecast are based upon estimates and reflect subjective judgments and assumptions. There can be no assurance that developments will transpire as forecasted and that the estimates are accurate. The above targets are estimates based on certain assumptions and analysis made by SSGA. There is no guarantee that the estimates will be achieved.
Fund
The ECB decision to keep the policy rate unchanged prompted the market to shift to a view that the ECB may potentially be nearing the end of its rate-cutting cycle. Prior to the meeting, the fund invested in mostly shorter-term securities for the higher yields offered versus duration investments, but following the ECB meeting market yields moved higher and the fund added duration in higher credit quality investments. Fund AUM throughout the period remained in the region of EUR 9 billion with the weighted average maturity (WAM) increasing over the period to end the month at 49 days. Fund liquidity was covered with a combination of government and supranational holdings, gilt repo, and bank deposits. Fund liquidity requirements, both overnight and weekly, remained well in excess of minimum requirements at all times. The fund credit rating also exceeded requirements at all times.
Past performance is not indicative of future results
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