EUR/USD is holding steady above the 1.1000 mark as traders eagerly anticipate the European Central Bank (ECB) policy decision. The pair struggles to gain significant traction during the Asian session, hovering just above the psychological 1.1000 level. This comes after a four-week low was touched the previous day, indicating a sense of reluctance among traders who are waiting for the key central bank event risk.
Reduced expectations for a more aggressive Federal Reserve easing have bolstered the US Dollar, thereby capping gains for the major currency pairs. The US Consumer Price Index (CPI) report released on Wednesday showed that consumer prices in the US are easing overall. However, the core CPI indicated that underlying inflation remains sticky, disappointing hopes for a larger rate cut by the Fed next week. This, combined with an uptick in US Treasury bond yields, has lifted the USD Index (DXY) closer to its monthly peak.
Market participants have already priced in expectations for a 25 basis points rate cut by the Fed at the upcoming FOMC meeting in September. While the market sentiment remains positive, it limits the upside potential for the US Dollar. This scenario is likely to provide some support to the EUR/USD pair going into the ECB policy decision, urging caution among bearish traders.
The ECB is widely expected to lower interest rates by 25 basis points, given signs of cooling inflation in the Eurozone. The German Consumer Price Index (CPI) print fell to its lowest level in over three years in August, approaching the ECB’s 2% target. A rate cut tends to weaken the Euro, as it reduces its attractiveness for foreign investors. The ECB’s updated economic projections and comments from ECB President Christine Lagarde are expected to play a crucial role in influencing the Euro.
In addition to the ECB policy decision, the release of the US Producer Price Index (PPI) is anticipated to provide further trading opportunities for the EUR/USD pair. Investors will closely monitor these economic indicators to gauge the overall health of the US and Eurozone economies. The outcome of these data releases could have a significant impact on the currency pair’s movement during the North American trading session.
As traders brace themselves for the ECB policy decision and the release of key economic indicators, the EUR/USD pair remains range-bound above the 1.1000 mark. The interplay between central bank policies, inflation trends, and market sentiment will continue to shape the currency pair’s trajectory in the near term. Investors are advised to exercise caution and closely monitor developments that could influence the Euro and the US Dollar.