The EUR/AUD currency pair has pulled back from a 1-month high of 1.7707 ahead of the outcome of the European Central Bank’s policy meeting and as slower Australian GDP growth in Q1 bolstered July rate cut bets.

The European Central Bank is largely expected to lower its main refinancing operations rate by 25 basis points to 2.15% at its June 5th policy meeting. And, the ECB deposit facility rate is expected to be reduced to 2.00% from 2.25% currently.

In April, the central bank stressed on higher confidence that inflation was on track to return sustainably to the 2% target. Policy makers noted that wage growth was moderating, while businesses were absorbing some of the cost pressure.

Euro Area’s annual inflation has eased to 1.9% in May from 2.2% in April and compared to economist estimates of 2%.

The pullback in May’s figure was largely influenced by a drop in services inflation, which eased to 3.2%. This marked the lowest level since March 2022.

However, the ECB pointed out that the deteriorating outlook for the bloc’s economic growth remained a primary concern. The weakening growth forecast was largely attributed to escalating global trade tensions.

Market players will be closely watching ECB President Christine Lagarde’s press conference for any hints regarding future interest rate trajectory.

Lagarde has acknowledged the “exceptional uncertainty” clouding the economic outlook, citing new trade barriers facing Euro Area exporters, disruptions of international commerce, financial market tensions and geopolitical uncertainty as significant headwinds.

Meanwhile, data by the Australian Bureau of Statistics showed that Australia’s economy had expanded 0.2% in the first quarter of 2025. This marked a decline from the 0.6% reported during the previous quarter, while the figure fell short of the projected 0.4% growth rate.

On an annual basis, GDP growth remained unchained from Q4 2024’s 1.3%.

The data fueled speculation that the Reserve Bank of Australia could act to ease monetary policy further. Interest rate swaps now imply an 82% probability of a policy rate cut in July.

The EUR/AUD currency pair was last down 0.13% on the day to trade at 1.7568.