Euro flat ahead of ECB decision

The euro continues to show limited movement and is almost unchanged on Thursday. EUR/USD is trading at 1.1010 in the North American session at the time of writing.

ECB expected to deliver 25 bps cut

The European Central Bank meets later today and the markets are expecting a rate cut of 25 basis points, which bring down the key rate to 3.5%. This would mark the second rate cut after an initial 25-bps reduction in June. A jumbo 50-bps cut is also a possibility but I expect the ECB to play it safe and deliver a modest cut of 25-bps.

Inflation has fallen to 2.2% its lowest level since July 2021 and is close to the ECB’s target of 2%, although core CPI is higher at 2.8%. Wage growth has eased and eurozone GDP for Q2 was revised downwards to 0.2%, which means that conditions are favorable for another rate cut at today’s meeting.

If inflation remains low, the ECB could try to squeeze one final rate cut before year’s end and continue trimming in early 2025. ECB President Lagarde has ditched forward guidance, saying that rate decisions will be data-dependent. Still, the ECB has widely telegraphed that it will lower rates today and it’s no secret that the central bank is looking to continue cutting if the data is favorable.

The ECB will also release updated economic forecasts today and investors will be looking for hints about future rate policy. If Lagarde sends a dovish message about future rate cuts, it would likely hurt the euro, which has gained 1.1% against the US dollar since late August.

EUR/USD technical

• EUR/USD is testing resistance at 1.1023. Above, there is resistance at 1.1044.

• There is support at 1.0991 and 1.0970.