Euro Rate Cut Backstabs US, Fed Frantically Pressuring

Once a monolithic entity, the Western alliance of Europe and America is now beginning to crumble.

According to authoritative European media, the European Central Bank (ECB) is set to cut interest rates for the first time on June 6th, a move that could be seen as a stab in the back to the United States.

What impact will the EU's rate cut have on the global capital markets, and is it good or bad for China?

What will the U.S. do next?

Where should ordinary investors turn?

The ECB's rate cut is seen as a recent move by the European Central Bank that could have profound and significant effects on the global financial landscape, especially for its ally, the United States.

It is expected that on this coming Thursday, the ECB will decide to lower the deposit rate by 25 basis points.

Given the still serious inflation situation in the Eurozone, the ECB's rate cut steps may be relatively cautious and prudent.

However, as the second-largest currency in the world after the US dollar, any subtle changes in the euro could trigger severe market shocks and fluctuations.

Therefore, this news is very much worth paying attention to.

Firstly, we need to discuss why some people accuse the euro's rate cut measures as a "stab in the back" to the United States.

Currently, the US dollar is under considerable pressure, and the Federal Reserve has always been resolute in maintaining the original interest rates, and has recently been sending increasingly hardline signals.

This approach has undoubtedly led to turbulence in the US stock market.

The main motive behind the U.S. adopting this strategy is obviously to pressure other countries by continuously raising interest rates, especially targeting China.

It is worth noting that the U.S. has implemented 11 rounds of interest rate hikes, causing a massive influx of funds back to the domestic market, dealing a heavy blow to China's real estate and securities markets.

At this critical moment, if the EU chooses to adopt a policy opposite to that of the U.S., taking the strategy of an early rate cut and releasing liquidity, this would undoubtedly be a great piece of good news for China.

At the same time, it could also make some of the U.S. strategic plans go bankrupt ahead of schedule.

More importantly, the EU's rate cut could also help the euro to compete with the US dollar again in the international payment market.

After all, after this round of the US dollar's interest rate hike cycle, the global payment share of the euro has declined significantly, while the share of the US dollar has increased accordingly.

If the EU can seize the opportunity through rate cuts, it may be able to regain those lost market shares.

In addition, the U.S. not cutting rates while the EU cuts rates early will also have a significant impact on the U.S. Treasury market.

Due to the expectation of the euro's rate cut, companies like Morgan have already begun to increase their holdings of European debt.

At the same time, the pressure on U.S. Treasury bonds is also increasing, with some long-term Treasury bond face values plummeting.

In this situation, the risk of U.S. Treasury bond defaults is also increasing.

Of course, some people worry whether the EU's rate cut will lead to an accelerated outflow of foreign capital from the Eurozone.

But in fact, the U.S. has already raised interest rates for more than two years, and most of the dollars that can be reflowed have already been reflowed.

So, the impact of the EU's rate cut on this aspect may not be very significant now.

The last issue worth paying attention to is whether the EU can withstand the pressure from the U.S. and how much of a rate cut they can actually afford.

Before the ECB officially cuts interest rates, Switzerland and Sweden have already started to cut rates, which may be a preliminary test of Europe's policy towards the U.S.

It is said that this year the ECB may only cut rates four times, a total of 100 basis points.

If this is the case, it also shows that the EU's attitude towards the U.S. is still watching, trying not to provoke the U.S. too much.

Overall, the ECB's series of actions will not only have a significant impact on Europe itself but may also have a profound impact on the global financial market, especially in fighting against the U.S.'s current financial policy.

The ECB seems to be about to start cutting interest rates, and this move is actually quite interesting.

Although it is only tentative, once the ECB starts the rate cut mode, it really means that Europe is about to enter a new financial easing cycle.

After this news came out, the U.S. side was obviously not very happy.

As we all know, there is a saying in the currency market that bad money drives out good.

Now, the U.S. dollar has been continuously raising interest rates, and the international U.S. dollars have flowed back to the U.S., causing some dollar-short economies to start to feel the pinch.

At this time, if the euro starts to cut interest rates, it will inject more liquidity into the market to fill the gap left by the U.S. dollar.

For the U.S., this is simply a dilemma.

If the U.S. does not follow the rate cut, it may affect the status of the U.S. dollar as an international currency; if it follows the rate cut, it may lead to capital outflows, and the U.S. stock market may face the risk of collapse.

Now, the U.S. is increasingly increasing the pressure on the EU.

Before the ECB has not officially implemented the interest rate reduction measures, the U.S. still has the possibility to reverse the current unfavorable situation.

Therefore, the Federal Reserve has recently frequently released signals that the benchmark interest rate is about to be raised, which is actually a warning to the EU, telling it not to act too outrageously.

At the same time, U.S. Treasury Secretary Yellen recently went to Italy and held a meeting with the other finance ministers of the Group of Seven (G7).

They not only conducted in-depth discussions on the issue of jointly increasing tariffs against China but also discussed how to deal with the assets held by Russia overseas.

It is worth noting that the U.S. is currently accelerating the plan to confiscate Russia's foreign exchange reserves, which will undoubtedly have a profound impact on the global strategic pattern and the interests of all parties.

The original intention of the issuance of the U.S. dollar should be to meet the needs of global trade.

However, since the subprime crisis, the U.S. dollar system has been increasingly distant from the global trade system.

Now, the over-issuance of the U.S. dollar is based on domestic Treasury bonds, not the scale of global trade.

This major transformation has led to a continuous decline in the credibility of the U.S. dollar.

The U.S. has issued too many IOUs to foreign countries.

If there is really a problem with payment in the future, what should be done?

Now, the U.S. has not only issued too many IOUs but also started to confiscate other people's IOUs.

This is no longer an ordinary harvest, it is a financial nuclear bomb, almost turning the credibility of the U.S. dollar into waste paper.

The world has suffered from the U.S. for a long time, not only do we feel it, but even Japan and South Korea are trying to save their own currencies to fight against the U.S. dollar's interest rate hikes.

Not to mention the recent awakening of Europe.

The EU's inflation has been controlled within the 2% range, and it is fully qualified to cut interest rates.

This rate cut can not only help the economic recovery of the Eurozone but also help them emerge from the shadow of the Russia-Ukraine war that has lasted for more than two years.

Theoretically speaking, if this rate cut is really implemented, it is not only a good thing for Europe but also an opportunity for other countries.

The real market trend is that the European Central Bank is expected to implement a rate cut policy within this week, which will undoubtedly have a profound impact on the global currency market.

Looking at the market reaction throughout history, such news can always trigger a positive response, and people generally believe that the euro's rate cut will promote China's economic development and attract more European funds to enter the domestic market.

However, a deeper analysis reveals that the reality is not so simple and clear.

Here, we will analyze and elaborate on the reasons in detail.

First, although in the short term, the rate cut seems to have many benefits, such as reducing borrowing costs, thereby stimulating economic vitality.

However, thinking from another perspective, rate cuts are often due to weak economic growth and the urgent need for policy stimulation, which itself reveals potential risks and challenges in the operation of the economy.

So, if the Eurozone really starts to cut interest rates, it may mean that their economic situation is worse than imagined.

Speaking of the impact on China, theoretically, the euro's rate cut may indeed cause the euro capital to flow to markets with relatively higher interest rates, such as China.

This may indeed be beneficial for China in the short term.

But looking back, if the euro economy continues to weaken, the capital that flows into China may also withdraw at any time, which is a test for market stability.

Moreover, the rate cut will also cause the euro to depreciate, and the U.S. dollar to appreciate relatively.

Since most international trade is still settled in U.S. dollars, this may lead to an increase in the cost of raw materials, affecting the global supply chain, including China.

From another perspective, the difference in monetary policy between the U.S. and Europe will also increase the uncertainty of the global financial market.

If the Federal Reserve does not follow the rate cut, it may cause the U.S. dollar to be too strong, affecting U.S. exports.

But if the Federal Reserve also cuts interest rates, it may trigger a significant adjustment in the capital market, which is a challenge to the global market.

In fact, the ECB's rate cut may also have a component of preemption.

They may be predicting that the Federal Reserve will cut interest rates in the future, so they take the lead in action, hoping to maintain the competitiveness of the Eurozone in this way.

And what does this preemption mean for China?

Simply put, the form of financial warfare is changing now.

The U.S. and Europe may both be trying to use their monetary policy to bind or rebind the global capacity and capital flow.

For China, the euro's move may mean that more European capital will flow into the Chinese market in the future.

But the big chess game behind this is that Europe may be trying to use its low-cost funds to grab the market share of the U.S. dollar.

If the euro can really occupy a place in the Chinese market, it may be a big challenge for the U.S. dollar.

So, looking at the possible rate cut of the euro this time, we cannot only see the surface benefits but also need to deeply understand the trend of international financial policy and the strategic game between major countries.

These are all factors that will directly or indirectly affect our own economic and market trends.

In short, everything still needs to be observed, and the real market trend is often much more complex than theoretical analysis.