The European Central Bank remains the day’s focus, and the euro added 0.11% to $1.0882, standing just short of a two-and-a-half month top of $1.0916 reached earlier in the week
The euro firmed a bit on Thursday ahead of the European Central Bank’s policy meeting, where traders will focus on rate setters’ remarks on their future path as a cut at this meeting is a done deal.
Central banks were in focus, as they have tended to be in recent months, with the Canadian dollar strengthening a little after having softened into the Bank of Canada’s Wednesday meeting when it trimmed its key policy interest rate as widely expected. The currency was last at C$1.3679 per dollar.
Investors are also grappling with the implications for the Fed of several pieces of U.S. data this week showing employment growth moderating, although along with a rise in service sector activity.
Markets are now pricing in around 50 bps of Fed rate reductions this year, with the first expected to come in September.
The European Central Bank remains the day’s focus, and the euro added 0.11% to $1.0882, standing just short of a two-and-a-half month top of $1.0916 reached earlier in the week.
A cut at Thursday’s meeting has long been expected, and the euro’s recent strengthening against the dollar has come as investors lowered their expectations of significant further rate reductions this year, while, this week, slightly raising bets on monetary easing in the U.S.
Markets are currently pricing almost 63 bps of ECB rate cuts this year, implying a 25 bps cut at Thursday’s meeting, and one or maybe two more such cuts by year end.
Should they surprisingly hold, the euro could face a brief earthquake, but a cut looks almost guaranteed and is fully priced in, so the attention will be on communication, said Francesco Pesole, FX strategist at ING in a note.
We think it is likely there will be almost no new forward guidance, with the ECB potentially signalling any further easing would only be gradual -in line with policy makers’ off-meeting comments – and that there are still risks to inflation, Pesole added.
The euro was also a fraction stronger on the pound at 85.03 pence though towards the bottom of its recent range.
Versus the dollar, sterling was up a bit at $1.2795.
