- EUR/USD exhibits uncertainty near 1.1000 ahead of the ECB’s policy decision.
- The ECB is expected to cut the Rate On Deposit Facility by 25 bps to 3.5%.
- Sticky US inflation data cements Fed’s 25 bps interest rate cut prospects for next week’s policy meeting.
EUR/USD struggles near more than a three-week low, around 1.1000 in Thursday’s European session. The major currency pair remains on tenterhooks, with investors focusing on the European Central Bank’s interest rate decision, which will be announced at 12:15 GMT. The ECB is widely anticipated to cut the Rate On Deposit Facility by 25 basis points (bps) to 3.5%.
This will be the second interest rate cut by the ECB in its current policy easing cycle, which it started in June after gaining confidence that inflationary pressures in the Eurozone will return to the central bank’s target of 2% in 2025. The ECB left its key borrowing rates steady in July as officials seemed worried that an aggressive monetary stance could revamp price pressures again.
Market speculation for the ECB reducing interest rates on Thursday strengthened due to a sharp decline in Eurozone price pressures and growing risks to Germany’s economic growth, the largest nation of the old continent. The German economy contracted by 0.1% in the second quarter of the year and is exposed to a recession due to a poor demand environment.
Given that the ECB is almost certain to cut interest rates again on Thursday, investors will keenly focus on cues about the interest rate cut path. “The ECB is unlikely to offer enough information through forward guidance or new economic forecasts to justify another rate cut in October,” “Our house view remains 25bp rate cuts today and December 12”, said Chris Turner, analyst at ING.
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