EUR/USD has oscillated around the 1.07 level since the start of the month. A disappointing European Central Bank (ECB) decision at its meeting on Thursday could pave the way for a fall below 1.06 during the week ahead, economists at Scotiabank report.

Lagarde unlikely to fan the flames of 50 bps hike bets

“The bloc’s economy expanded by 0.6% QoQ, double the initial estimate, lifting Eurozone yields ahead of tomorrow’s ECB decision. Implied pricing for the bank’s Sep meeting rose by 5bps to near 75bps – implying nearly a full 50bps hike at one of the Jul or Sep meetings.” 

“We think Lagarde is unlikely to fan the flames of 50 bps hike bets as the ECB sticks to a gradual forward guidance approach.” 

“A disappointing ECB decision, a US inflation beat, and a hawkish Fed next week could combine to pull the EUR firmly below 1.06 in the space of a week.”