Tensions around global trade and inflation took center stage today as the European Central Bank made a closely watched decision. The ECB has opted to keep its key interest rate unchanged at 2%, as economic uncertainty, particularly over transatlantic trade, continues to loom large.

The announcement, made this afternoon by the bank’s Governing Council, comes as inflation across the 20-member eurozone remains right on target, holding steady at 2% in June. That rate, once as high as 4% just a year ago, has been brought down by a series of cuts, with this latest decision marking the end of a streak of seven straight reductions.

In a statement, the ECB noted that inflationary pressures continue to ease, with wage growth slowing and the eurozone economy showing signs of resilience. But the bank also flagged what it called an “exceptionally uncertain” environment, citing rising fears over a looming US-EU trade showdown.

At the heart of that uncertainty, a threat from President Donald Trump. The White House has vowed to slap a 30% tariff on European imports starting August 1, unless a new trade agreement is reached. Brussels has warned it’s ready to retaliate with tariffs of its own.

Analysts say the ECB’s decision to hold the line on interest rates reflects caution, as both sides scramble to reach a compromise. Multiple outlets, including the Financial Times and CNBC, report the EU and US are nearing a deal that could introduce matching 15% tariffs — similar to a recent arrangement with Japan.

Despite the volatile backdrop, the ECB remains confident in its inflation outlook, projecting consumer prices will continue cooling potentially dropping to just 1.6% by next year. But the central bank reiterated that its mission is price stability, not deflation, warning that falling prices could harm investment and consumer spending.

As the countdown to the US tariff deadline continues, all eyes now turn to Washington and Brussels, with the eurozone economy caught squarely in the middle.

Reporting by Lisa Lomami.