On Thursday, the European Central Bank (ECB) will deliver a key decision. Economists at Scotiabank expect the EUR/USD to edge lower towards the mid-1.06s region following the announcement.

Consensus-beating US CPI report could further EUR losses

“The bar for a hawkish surprise from the ECB this week is high as markets may be overestimating the speed and the volume of hikes that the bank will deploy this year. The EUR is more liable to weaken (towards the mid-1.06s and the figure area) than rally following this week’s decision; a consensus-beating US CPI report on Friday that bolsters Fed hike bets could further its losses.”

“For the EUR to resume its uptrend, and possibly break through 1.08, we think that Lagarde would have to clearly note that the ECB is ready to act more aggressively to contain inflation and expectations if necessary (code for a 50bps hike), providing backing for aggressive market expectations.”