The European Central Bank (ECB) will deliver its latest policy decision on Thursday, with any changes to forward guidance likely to affect EUR.
At the time of writing, the euro is trimming its recent gains after cooler-than-forecast inflation figures, with EUR/USD pulling back from a six-week high struck overnight. GBP/EUR is ticking up from a near two-week low, while GBP/USD is retreating from a one-week high.
What is the ECB expected to do?
The ECB is widely expected to cut interest rates when it concludes its policy meeting on Thursday, bringing its benchmark rate down from 2.25% to 2%.
With this 25bps cut priced in, investors will focus on the bank’s forward guidance. It’s possible that the ECB may indicate that rates are close to their neutral level, although today’s softer inflation figures may cause concern among policymakers.
How could this impact the euro?
If the central bank does suggest that its rate-cutting cycle may be nearing its end, the euro could strengthen.
However, uncertainty over the inflation outlook and US trade policy could see policymakers take a more cautious approach. If the bank leaves the door open to further rate cuts and raises concerns about economic headwinds facing the Eurozone, EUR could stumble.
Attention then turns to the latest US non-farm payrolls figure on Friday. An expected slowdown in job creation could pile pressure on the US dollar, which in turn may provide the euro with support.
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