Commerzbank’s Antje Praefcke notes that EUR/USD is likely to stay relatively quiet until later in the week, when the European Central Bank (ECB) meeting and US inflation data could trigger stronger moves. She highlights that market expectations for further ECB rate hikes may need to be revised lower, potentially weighing on the Euro, while stronger US inflation could give the Dollar a modest lift.

ECB and US data to drive moves

“Things won’t really get exciting for EUR/USD until the end of the week – specifically, tomorrow with the ECB meeting and on Friday with the US inflation figures for August.”

“At the ECB meeting, the key question will be whether the Governing Council signals further rate hikes after tomorrow’s expected rate increase, as the market still sees a chance of another rate hike by year-end and even beyond, whereas our experts are more skeptical and expect the rate-hiking cycle to end.”

“If the market has to revise its expectations downward, the euro is likely to weaken.”

“The market is hoping that the US inflation data for August will provide clues as to whether the Fed will indeed take action next week and raise the federal funds rate, as it is not yet entirely certain about this. So if the data comes in stronger than expected, adjustments to interest rate expectations could give the dollar a small upward boost.”

“As dull as today is likely to be on the foreign exchange market (in contrast to the energy market following the latest escalation in the Middle East) ahead of tomorrow’s ECB meeting and Friday’s US data, EUR/USD could become quite volatile toward the end of the week.”