The euro gave back some of the gains from the previous session as European trading got underway on Wednesday. This morning’s retreat against the US dollar is modest, and the single currency may still be on course for a fourth consecutive day of gains. However, the euro is encountering growing headwinds, with the looming 1 August deadline set by the US to reach a trade deal with the EU — and the tail risk of a worst-case scenario involving 30% tariffs — limiting upside potential. Against this backdrop, today’s ECB rate decision is expected to bring a pause to the easing cycle, which began in June 2024 with a series of eight rate cuts. With inflation now very close to the 2% target and uncertainty surrounding the outcome of the trade dispute with the US, the European Central Bank is likely to adopt a wait-and-see approach. Investors will be paying close attention to the post-meeting statement and press conference for insights into policymakers' thinking on the future path of monetary policy as the year progresses. Markets currently expect at least one further rate cut in 2025, potentially as early as September. However, any signals from today’s meeting that diverge from this view could shift market expectations — either reinforcing the euro’s recent upward trend or limiting gains in the event of a more dovish tone.
Ricardo Evangelista, ActivTrades
Source: ActivTrader
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