The EUR/USD pair has been fluctuating recently, with the Euro gaining ground around 1.0875 despite the recovery of the US Dollar. The upcoming decision from the European Central Bank (ECB) regarding interest rates is expected to play a significant role in shaping the future direction of the currency pair. Additionally, speculation about potential rate cuts from the Federal Reserve in the US is also adding to the volatility in the market.
The ECB is anticipated to cut its interest rates by 25 basis points (bps) at its upcoming meeting, marking the first rate cut in five years. This move is expected to bring the main refinancing, marginal lending, and deposit rates to 4.25%, 4.50%, and 3.75%, respectively. The market has already priced in the possibility of further rate cuts by September and the end of the year, indicating a divergence in monetary policy between the ECB and the Fed.
The expected rate cuts from the ECB could create selling pressure on the Euro and pose a challenge for the EUR/USD pair. The potential rate cuts from the Federal Reserve, on the other hand, may weigh on the US Dollar in the near term. The recent stronger-than-expected US ISM Services Purchasing Managers Index (PMI) data has provided some support to the USD, but the focus remains on the upcoming US Nonfarm Payrolls (NFP) data release.
Traders are currently pricing in a higher probability of a Fed rate cut in September, which has further added to the uncertainty in the market. The expectations of 70% odds of a rate cut, as indicated by the CME FedWatch tool, highlight the growing speculation surrounding the US monetary policy decisions. This evolving scenario is likely to impact the performance of the EUR/USD pair in the coming days.
The central bank decisions in both the Eurozone and the US are expected to have a significant impact on the EUR/USD exchange rate. The divergence in monetary policy between the ECB and the Fed, coupled with market speculation about potential rate cuts, is creating a challenging environment for currency traders. The upcoming announcements and data releases will be closely monitored to gauge the future direction of the currency pair and the overall market sentiment.