- EUR/USD is stabilizing above the 1.1000 level as traders eagerly await the ECB's policy decision.
- Diminished expectations of more aggressive Fed easing have weakened the US dollar, limiting gains for major currencies.
- Traders appeared cautious ahead of major central bank event risks and the release of the U.S. Producer Price Index.
The EUR/USD pair struggled to gain any meaningful traction during Thursday’s Asian session, fluctuating in a narrow range just above the psychological milestone of 1.1000, or the four-week low it touched the previous day. Traders appear to be reluctant, opting to wait for the highly anticipated European Central Bank (ECB) policy meeting before taking positions for the next stage of the directional move.
The ECB is widely expected to cut interest rates by 25 basis points (bps) amid signs of a slowdown in eurozone inflation. This expectation was reaffirmed by data showing that German consumer price index (CP) fell to its lowest level in more than three years in August, approaching the ECB's 2% target. This weakens the common currency, acting as a headwind for the EUR/USD pair as the US Dollar (USD) strengthens slightly.
The US Consumer Price Index (CPI) report released on Wednesday showed that US consumer prices are easing overall. However, the core CPI suggested that underlying inflation remains solid, dashing hopes of a significant interest rate cut by the Federal Reserve next week. This was reinforced by rising US Treasury yields, pushing the US Dollar Index (DXY), a correlation between the US dollar and a basket of currencies, towards a monthly high.
That said, the market is fully pricing in the prospect of the Fed's policy easing cycle beginning soon, with a 25 basis points rate cut at the end of the FOMC meeting on September 17-18. This, coupled with the upbeat mood in the market, is limiting further gains in the safe haven US Dollar. This should continue to provide some support for the EUR/USD pair heading into a major central bank event risk, bearish traders should be cautious.
Investors may prefer to wait for the ECB’s latest economic forecasts, which, along with comments from ECB President Christine Lagarde, will have an impact on the euro. Separately, the release of the US Producer Price Index (PPI) could provide fresh impetus to the EUR/USD pair and create meaningful trading opportunities during the North American session.
Economic indicators
ECB Key Refinancing Operation Interest Rates
One of three key interest rates set by the government. European Central Bank For the European Central Bank (ECB), the Prime Operating Rate is the interest rate that the ECB charges banks for one-week loans. It is announced at its scheduled 8th annual meeting. If the ECB predicts a rise in inflation, the ECB will raise interest rates to bring inflation down to its 2% target. This tends to be bullish for the Euro (EUR) as it increases foreign capital inflows. Similarly, if the ECB sees inflation falling, it may lower the Prime Operating Rate to encourage banks to borrow and lend more in the hope of boosting economic growth. This tends to weaken the Euro as it becomes less attractive as a place for investors to park their capital.
Next release: Thursday, September 12, 2024 12:15
frequency: Irregular
consensus: 4%
Previous: 4.25%
sauce: European Central Bank
