Bitcoin reversed course while the euro's two-day bounce stalled, with observers eyeing the European Central Bank's (ECB) reaction to the impending storm of high inflation and low growth.

CoinDesk data shows the top cryptocurrency fell to $39,000 during Asia hours, nearly reversing Wednesday's 8% spike brought by U.S. President Joe Biden's crypto executive order.

"Market dropped again around 1:30 UTC during the Asian trading on long liquidations washouts which are still dominating the leverage markets," Laurent Kssis, a crypto exchange-traded fund expert and director of CEC Capital, said. "Any potential of a pullback seems futile due to the selling pressures these liquidations create."

The euro-dollar exchange rate (EUR/USD) was flatlined around 1.1065, having bounced nearly 200 pips (usually the last decimal place of price) in the preceding two days, according to TradingView.

Historically, the Federal Reserve (Fed) has had the biggest impact on crypto markets and ECB rate decisions have had little to no relevance. However, Thursday's decision is pivotal, according to one observer.

"At present, we already know that the Fed will raise interest rates, so no matter how the U.S. market changes, this thing will happen. The most considerable influence at the moment may be the hawkishness of the European Central Bank this week," said Griffin Ardern, a volatility trader from crypto-asset management company Blofin.

"Any unexpected move by the ECB could trigger a fall in the market," Ardern added.

The ECB is scheduled to announce its decision on monetary policy on Thursday, March 10 at 12:45 GMT. ECB's President Christine Lagarde will hold a news conference at 13:30 UTC, or 45 minutes after the ECB's policy announcement.

Markets have recently scaled back expectations for the ECB tightening as the ongoing Russia-Ukraine war is expected to push the European economy into recession characterized by high inflation.

According to Refinitiv data, as of Wednesday, money markets had priced in an ECB interest rate rise of less than 15 basis points in December versus a 30 basis point hike before Russia invaded Ukraine on Feb. 24.

According to Chris Vecchio, strategist at DailyFX, the looming threat of liquidity crisis in Europe may see ECB delay policy tightening.

"There is a non-zero chance that the European and U.S. sanctions on the Central Bank of Russia provoke a liquidity crunch for European banks that persists for the foreseeable future. In turn, this may be providing the excuse ECB officials need to justify keep their asset purchase program in place through 3Q'22, and interest rates lower for longer," Vecchio said in an email.

Most investment banks foresee the ECB to keep the policy stance unchanged while adopting a more flexible stance on inflation, according to FXStreet.

Traders will also be watching the U.S. consumer price index (CPI) data for February, due for release at 13:30 GMT. "The consensus forecast is for acceleration in the headline reading from 7.5 to 7.8%. I think the risk is for an even larger increase in prices," John Kicklighter, strategist at DailyFX, said.

A big beat on expectations might revive fears of a 50 basis point Fed rate hike next week, perhaps putting downward pressure on risky assets. The Fed is widely expected to hike rates by 25 basis points next week.

All writers’ opinions are their own and do not constitute financial advice in any way whatsoever. Nothing published by CoinDesk constitutes an investment recommendation, nor should any data or Content published by CoinDesk be relied upon for any investment activities. CoinDesk strongly recommends that you perform your own independent research and/or speak with a qualified investment professional before making any financial decisions.

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