EUR/USD remains near multi-month low and defends 1.1000 mark ahead of ECB meeting
- EUR/USD remains stable above the 1.1000 level as traders eagerly await the ECB’s decision.
- Lower bets on more aggressive Fed easing are supporting the USD and capital gains in major currencies.
- Traders appear cautious given key central bank risk and the release of the US Producer Price Index (PPI).
The EUR/USD pair is struggling to gain any significant upside during Thursday’s Asian session, fluctuating in a tight band just above the psychological level of 1.1000, or a four-week low reached the previous day. Traders appear cautious, preferring to wait for the much-anticipated European Central Bank (ECB) meeting before positioning for the next leg of a directional move.
The ECB is widely expected to cut interest rates by 25 basis points amid signs of cooling inflation in the Eurozone. This assumption was confirmed by data showing that the German consumer price index (CP) fell to its lowest level in over three years in August, hitting the ECB’s 2% target. This, in turn, undermines the common currency and acts as a headwind for the EUR/USD pair amid moderate strength in the US dollar (USD).
The US CPI report released on Wednesday suggested that overall US consumer prices are falling. However, the core CPI suggested that underlying inflation remains sluggish, dashing hopes of a major rate cut by the Federal Reserve (Fed) next week. This is being reinforced by a rise in US Treasury yields, bringing the USD Index (DXY), which tracks the dollar against a basket of currencies, closer to its monthly high.
However, markets have fully priced in the prospect of an imminent start to the Fed’s monetary easing cycle and a 25 basis point rate cut at the end of the FOMC meeting on September 17-18. This, coupled with bullish market sentiment, limits any further appreciation in the safe-haven greenback. This should continue to provide some support to the EUR/USD pair as it heads toward key central bank event risk, and bearish traders should be cautious.
Investors may also prefer to wait for the ECB’s updated economic forecasts, which will influence the euro along with comments from ECB President Christine Lagarde. Apart from that, the release of the US Producer Price Index (PPI) could give new impetus to the EUR/USD pair and provide some significant trading opportunities later in the North American session.
Economic indicator
ECB main refinancing rate
The main refinancing rate is one of the three key interest rates of the European Central Bank (ECB). It is the interest rate that the ECB charges banks for one-week loans. It is announced by the European Central Bank at its eight annual meetings. If the ECB expects inflation to rise, it raises its key interest rate to bring it back down to its target of 2%. This tends to have a positive effect on the euro (EUR) as it attracts more foreign capital. Similarly, if it detects falling inflation, the ECB may lower the main refinancing rate to encourage banks to borrow and lend more in the hope of stimulating economic growth. This tends to weaken the euro as it makes it less attractive for investors to park capital.
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Next version: Thu 12 Sep 2024 12:15
Frequency: Irregular
Consensus: 4%
Previous: 4.25%
Source: European Central Bank
