The euro-dollar currency pair declined to near 1.1350 during European trading on Thursday, with EURUSD edging lower ahead of the European Central Bank’s interest rate decision later in the day.
The ECB is expected to cut its key borrowing rates by 25 basis points (bps), pushing the Deposit Facility Rate and the Main Refinancing Operations Rate lower to 2.25% and 2.4%, respectively.
Traders are increasingly confident that the ECB will reduce rates for the seventh time since the central bank started its easing cycle in June and sixth time in a row amid high conviction that the Eurozone inflation is on track to return to the bank’s target of 2% by the year-end.
Additionally, fears of economic shocks in an already slowing economy pave the way for further monetary policy easing.
As the ECB is almost certain to cut rates, investors will pay close attention to ECB President Christine Lagarde’s press conference for fresh cues on the monetary policy and the economic outlook.
Market participants would be keen to know whether Lagarde will commit to her stance that interest rates are still restrictive. If she reiterates the same, it would increase the probability of further policy easing this year.
In addition, investors would like to know how much the tariff policy of US President Donald Trump will impact the Eurozone economic growth and what kind of measures the ECB would take to contain it.
The old continent is expected to be one of the major victims of Trump’s international policies, even as the European Union’s trade commission manages to negotiate a fair deal with Washington.
China is expected to diversify its products to other nations if the trade war between the US and Beijing continues. China could sell many products to the Euro area and other economies, as no other nation can beat its low-cost competitive advantage.
The DXY Dollar Index, which tracks the greenback’s value against six major currencies, rebounds to near 99.60.
The dollar is attracting bids on positive development in trade negotiations between the US and Japan.
On Wednesday, President Trump indicated through a post on TruthSocial that negotiations between Japan’s economic revitalisation minister Ryosei Akazawa and US departments have made big progress.
“A Great Honour to have just met with the Japanese Delegation on Trade. Big Progress!” Trump wrote.
Investors see this as a constructive step by the US president that will diminish fears of global economic turmoil.
His preference for negotiating bilateral trades with his trading partners rather than imposing hefty tariffs will ease uncertainty across the globe. However, the escalated trade war between the US and China will keep investors on their toes.
The fight between the world’s two largest powerhouses has shifted to “who will initiate trade talks” from “size of tariffs”.
On Tuesday, White House press secretary Karoline Leavitt had said that the president was open to a trade deal with Beijing, but China should make the first move.
“The ball is in China’s court: China needs to make a deal with us, we don’t have to make a deal with them,” Leavitt was quoted by Reuters as saying.
EURUSD chart by TradingView
(Source: OANDA)
