The ECB cut rates on Thursday, as expected.

In the new statement, the Governing Council patted itself on the back for a job well done on inflation before getting to the bad news about growth. “The disinflation process is well on track,” policymakers said, adding that “most measures” of the underlying trend “suggest inflation will settle at around 2% on a sustained basis.”

You can hardly blame the GC if they’re pleased with how the inflation picture looks. As noted here earlier this month, Christine Lagarde can say she presided over the most aggressive tightening campaign in the short history of the ECB, then pivoted to cut rates seven times as inflation moderated, with the end result being 2.2% headline inflation, 2.4% core inflation and a depo rate that’s more or less neutral. That’s success.

There’s the chart, updated with Thursday’s rate cut, which brought the depo rate to 2.25%.

And yet, as discussed in the linked article above, this is an “out of the frying pan, into the fire” moment for the ECB. The inflation battle may be won, but now the GC’s faced with putting a floor under the bloc’s economy as Donald Trump’s trade war threatens an anyway tenuous growth outlook.

“US tariffs and the never-ending back-and-forth have brought back growth concerns for the eurozone, clearly offsetting previous optimism stemming from the German fiscal policy U-turn, at least in the near-term,” ING’s Carsten Brzeski said Thursday, noting that “the strengthening of the euro and the drop in energy prices have added to the disinflationary impact that the current trade tensions will have.”

That latter point’s key. During the early days of the Ukraine war, Europe and the UK (and Japan and a lot of other nations besides) were grappling with an energy shock exacerbated by currency weakness. Now, the ECB’s looking at the opposite: Falling energy prices and currency strength, catalyzed by inflows to EUR assets as investors rethink the case for US equities, Treasurys and even the dollar itself.

“The euro is now materially misaligned with rate expectations [and] while the ECB and eurozone governments would welcome signs of reserve status for local assets, euro strength does not support their policy objectives,” BNY Mellon’s Geoff Yu remarked.

A strong euro also undercuts the bloc’s export competitiveness, which is to say it hobbles Europe in the trade war, and while Lagarde would say that’s none of the ECB’s concern, she’s cognizant of it, to put it politely. Trump on Thursday castigated Jerome Powell for not cutting as many times as Lagarde.

With the growth outlook imperiled by the trade war, and the sudden bout of currency appreciation for now blunting any inflationary impact from the tariffs, the ECB arguably has carte blanche to take the depo rate at least some way into accommodative territory. Indeed, some would argue Lagarde’s actually behind the curve on the easing front.

Obviously, the ECB would rather not have to deal with tariffs. “The euro area economy has been building up some resilience against global shocks, but the outlook for growth has deteriorated owing to rising trade tensions,” the GC said Thursday. “Increased uncertainty is likely to reduce confidence among households and firms, and the adverse and volatile market response is likely to have a tightening impact on financing conditions [which] may further weigh on the economic outlook.”

One more time: There are no winners from a trade war.