The European Central Bank (ECB) is not expected to raise interest rates at its upcoming meeting. While inflation levels remain elevated, they have made significant progress in converging with the central bank’s target. However, the Eurozone’s economic recovery is struggling to gain momentum. Recent declines in both manufacturing and services PMIs suggest that growth remains sluggish despite the end of the recession. Given this subdued economic activity, it is likely that ECB policymakers will refrain from pursuing further tightening measures.
This week, analysts and economists anticipate that policymakers will keep the deposit facility rate at 3.75%. However, policymakers may also give themselves the option to raise rates at future meetings based on evolving data, particularly core and super-core inflation. This somewhat hawkish stance is also likely to deter ECB policymakers from prematurely implementing monetary policy loosening.
ECB Policy Impacts EUR/USD
The EUR/USD exchange rate is currently exhibiting bearish price signals as it remains below the 50-day and 200-day exponential moving averages (EMAs). However, if the European Central Bank (ECB) were to unexpectedly raise interest rates or take a more hawkish stance at its upcoming press conference, this could prompt bullish traders to challenge the resistance level at $1.0763, which is aligned with the 50-day EMA.
A dovish stance from the ECB could potentially open the path for the euro to fall to $1.06342. While the primary focus remains on the ECB, it is crucial to also take into account US economic indicators. The potential for substantial shifts in monetary policy that could support the dollar should not be overlooked ahead of Thursday’s session.