As major central banks around the world watch, the U.S. stays in motion, and the Asian central bank acts cautiously, the European Central Bank is highly likely to become the leader of the global interest rate drop this week, a sign of the global monetary policy’s “split time” coming.

The European Central Bank (ECB) is expected to announce a rate reduction of 25 basis points on Thursday, which will open the door to a weakening of the euro, marking the eurozone’s entry into a different policy path than the U.S. Federal Reserve. Since October last year, the European Central Bank has repeatedly suggested the possibility of a rate reduction and has shown greater confidence in achieving inflation targets at its April agenda, paving the way for this meeting.

European Central Bank Governor Christina Lagarde and her decision-making team have insisted in recent months that even if this could lead to devaluation of the euro, they could also do so with the Federal Reserve.

If the European Central Bank cut interest rates as expected, it would have a significant impact on the electric vehicle market in the euro area. Simulation calculations by the Kehl World Economic Institute show that if the EU imposes a 20% tariff on Chinese electric vehicles, imports will decrease by 25%. In 2023, the EU imports about 500,000 Chinese electric vehicles, after interest rates are expected to decrease by 12,500 units, worth about $3.8 billion, which will significantly affect German automakers producing in China.

The ECB meeting this week will also provide the latest forecasts on economic growth and inflation in the euro area. Despite a decrease of interest rates by several percent, marketers will still be closely watching the ECB’s monetary policy statements and Lagarde’s forward-looking guidance at the news conference. It is expected that ECB policy makers will continue to emphasize their data-dependent stance and wait for more economic data to be released to guide future policies.

The European Central Bank’s interest rate cuts will mark a key moment in global monetary policy. The Bank of Canada is also expected to announce interest rate cuts on Wednesday, and the Danish central bank may take the same action within hours of the ECB’s resolution. Earlier this year, European central banks such as the Czech Republic, Hungary, Sweden and Switzerland have been cutting interest rates in a row, and global policy interest rate differentiation has begun.

Looking back at the beginning of 2024, the market originally expected the Federal Reserve to lead this round of interest rate cuts, but now it seems that the Federal Reserve may only be cutting interest rates once this year, while European central banks will cut interest rates earlier and more dramatically.

Mohammad Eryan, Chief Economic Advisor at Anonymous Group, believes that the potential scope and extent of interest rate differentiation in European and American policies will affect the coordination between domestic economic priorities and avoidance of adverse exchange rate fluctuations.

In addition, interest rate differentiation in the U.S. election year could boost U.S. protectionism, increase the risk of financial instability, and further heighten concerns about the economy.

He pointed out that the key to shrinking interest rate differentiation in the future lies in the Fed. Though the Fed has always emphasized its policy decisions based on domestic circumstances, European policy difficulties may force it to make some adjustments. The Fed recognizes that excessive reliance on data and strict compliance with the 2% inflation target may increase the risk of a hard landing in the U.S. economy, causing a long-term blow to poor families and small.