Dear Reader,

Today's overview of economic news and market action

• ECB lowered its key interest rates by 25bps yesterday, as expected …
• However, the ECB remains data dependent and is not pre-committed to a specific rate path …
• Market reaction to the meeting was muted …
• EUR/USD opens today in the top half of $1.08-1.09 …
• EUR/GBP remains just above the 85p threshold …
• GBP/USD is in the upper half of $1.27-1.28 …
• The US labour market report (May) is due today …

The ECB’s Governing Council meeting for June saw the central bank cut its key interest rates by 25bps. The Deposit rate was lowered to 3.75% (from 4.00%), while the refi rate was reduced to 4.25% (from 4.50%). The June rate changes follow five consecutive policy meetings where the ECB kept rates on hold, having been in a rate hiking cycle between July’22 to September’23.

The latest AIB PMI® survey data indicated a faster increase in Irish service sector activity in May, as new business growth strengthened. The 12-month outlook also improved, and this was reflected another robust rise in services employment. There was a notable rebound in the Technology, Media & Telecoms sector, while Financial Services continued to expand sharply.

AIB Ireland Manufacturing PMI® data signalled a broad stabilisation in operating conditions in May as the headline index from the survey ticked up to a three-month high. Softer and only marginal contractions in output volumes and incoming new work were recorded during the latest survey period.

• Irish growth expected to continue at a more moderate pace than recent years, as the economy nears full capacity.
• Labour market to continue to grow and employment to reach 2.8 million by 2026.
• Central bank interest rate decreases will support real economy in the coming years.
• Real wages to rise as inflation normalises.
• Key trading partners’ performance provides a steady backdrop for the Irish economy.
• Theme in Focus: The outlook for interest rates.

AIB’s Senior Economist John Fahey and AIB Treasury’s Jane Kavanagh discuss the latest Irish Purchase Managers Index reports for the Manufacturing and Service sectors, trends in inflation and growth in the sectors and what these mean for the Irish economy.