ECB Raises Rate to 2.25%; Warsh Faces a Stronger Euro

The European Central Bank raised its deposit rate by 25 basis points to 2.25% on June 11 after eurozone consumer inflation climbed to 3.2%. The ECB’s Governing Council cited higher energy costs as the main driver and described the increase as insurance against persistent inflation.

The move is the first ECB rate rise since 2023. Traders and economists expect at least one additional hike this year, with September the most likely timing.

Higher yields on euro-denominated assets can draw global capital toward Europe, which tends to strengthen the euro and weaken the dollar. A weaker dollar raises the dollar price of imports and can add to inflationary pressure in the United States, where headline inflation recently stood at 4.2%.

The Federal Reserve has held its policy range at 3.50%–3.75% across three meetings this year. Markets assign a high probability that the Fed will keep rates unchanged at the June 17–18 FOMC meeting, scheduled six days after the ECB decision.

Kevin Warsh will preside over his first FOMC meeting this month after pledging a “regime change” on inflation discipline. The timing places Warsh at the center of market attention as investors assess international forces on U.S. monetary policy.

Goldman Sachs revised its forecast for the first Fed rate reduction to late 2026 or early 2027, citing pass-through from higher energy prices that could keep U.S. core inflation near 3% for the rest of the year. Cleveland Fed President Beth Hammack warned that waiting for “definitive evidence” that inflation has receded may require “larger policy adjustments, at greater cost.”

Markets adjusted quickly. Risk assets that had priced earlier rate cuts moved lower. Bitcoin fell from roughly $82,000 in mid-May to the low $60,000s as traders scaled back expectations for near-term easing.

Investors will watch U.S. data due this week, including producer-price inflation and jobless claims, and Warsh’s first post-meeting comments for signals about the Fed’s next steps. Central banks and market participants are monitoring inflation readings and official communications closely.