The EUR/USD pair moved slightly higher on Thursday, trading near 1.1470 during the early European session. The Euro showed mild strength against most major currencies as traders awaited the European Central Bank’s policy decision later in the day.
The ECB is expected to keep interest rates unchanged. The deposit rate is likely to remain at 2%, while the main refinancing rate may stay at 2.15%. This would mark the sixth straight meeting without any change in policy.
Recent comments from ECB officials have supported this view. Policymakers believe inflation in the Eurozone is close to the bank’s 2% target over the medium term, reducing the need for immediate action.
However, some analysts believe the central bank could still take a firm tone. Experts at Commerzbank expect ECB President Christine Lagarde to sound cautious about inflation risks. Rising oil prices, driven by tensions in the Middle East, are seen as a key factor that could push inflation higher again.
According to the report, traders are now expecting a possible rate hike by September. There is also around a 50% chance of another increase before the end of the year.
On the other hand, the US Dollar remained steady after strong gains in the previous session. The US Dollar Index (DXY) was holding near 100.20 at the time of writing.
The dollar strengthened after the US Federal Reserve kept interest rates unchanged between 3.50% and 3.75%. The Fed also signaled that rate cuts are not likely anytime soon, as inflation progress has slowed.
Fed Chair Jerome Powell made it clear that if inflation does not continue to improve, the central bank will not move toward rate cuts.
