After the European Central Bank abandoned its long-standing hawkish tendencies, the Eurozone market experienced volatility on Thursday, but analysts have differing opinions on how quickly the ECB will cut interest rates.

Due to the bleak economic outlook, coupled with the possibility of US President elect Trump imposing tariffs and political turmoil in France and Germany, the market is betting that the European Central Bank will quickly cut interest rates next year. At first glance, everything looks promising.

The European Central Bank cut interest rates for the fourth time this year on Thursday, no longer promising to "maintain sufficient policy rate limits for the necessary time" to reduce inflation. The central bank is confident that the inflation rate will continue to stabilize at the target level of 2%. However, the European Central Bank has not adhered to a specific interest rate path, which makes it difficult for markets betting on consecutive interest rate cuts next year to feel at ease.

When European Central Bank President Lagarde delivered a speech, the market seized further signs of caution, causing the yield on interest rate sensitive German two-year bonds to rise by about 5 basis points, and the yield on Italian 10-year bonds to rise by over 10 basis points. Lyn Graham Taylor, a senior interest rate strategist at Rabobank, said, "I understand why the market (thinks) her speech is a bit hawkish, and she hasn't recognized market pricing as expected

Analysts say that Lagarde's comments on the so-called 'neutral interest rate' (which neither stimulates nor restricts the economy) are a key factor that has left the market dissatisfied, and she says that decision-makers have not discussed this issue. After all, the market is betting that the key interest rate of the European Central Bank will drop to around 1.75% by the end of 2025, falling at the low end of the ECB's estimated interest rate of 1.75% -2.5%, as pointed out by Lagarde on Thursday.

Lagarde added that the idea is for the neutral interest rate to be "slightly higher" than before. Arne Petimezas, head of research at Dutch broker AFS Group, said that Lagarde's comments about service sector inflation remaining high also made her sound "quite hawkish".

Despite the volatile market on Thursday, the overall direction of expectations for the European Central Bank remained largely unchanged, and traders continued to bet on rapid interest rate cuts in the future.

They expect to cut interest rates by over 120 basis points by the end of 2025, only slightly lower than the estimate before the European Central Bank's interest rate decision.

They still believe that there is a possibility of a significant 50 basis point interest rate cut in the next two meetings, with a probability of about 20% in January and nearly 30% in March. Therefore, some analysts believe that the direction is clear, and Lagarde has also made this clear.

Piet Christiansen, Chief Analyst of Danske Bank in Denmark, said that Lagarde tried to appear dovish as much as possible. She has always kept the door open, allowing the market to speculate on a significant interest rate cut.

At the same time, the European Central Bank has lowered its economic growth forecast for next year to 1.1% and for 2026 to 1.4%, higher than a recent Reuters survey that predicted an economic growth of 1% next year and 1.2% in 2026.

Carsten Brzeski, Global Macro Head at ING, stated that he believes the European Central Bank is too focused on inflation, as many people believe that the ECB raised interest rates too late when inflation surged.

Three sources said that in fact, a few decision-makers initially hoped for a larger interest rate cut on Thursday, as they were concerned that the new US tariffs would hinder economic growth.

Brzeski said, "If they hold onto past mistakes, they may make new ones, which means they won't have time to save the economy.