The ECB is expected to cut its policy rate 25bps today, Scotiabank's Chief FX Strategist Shaun Osborne notes.

ECB cut widely expected

"There have been enough comments from more hawkish policymakers to suggest there will be a robust debate about policy amid current, heightened uncertainties but that may only emerge from the usual post-meeting leaks from 'people familiar' with today’s discussion. President Lagarde may not offer much guidance on the path forward for rates."

"Yield differentials remain a strong source of support for the USD and an ECB cut today will sustain the EUR’s negative spread over the USD after the Fed hold yesterday. But USD gains are unlikely to extend too far at the moment. The main hinderance on a USD advance remains positioning; everyone already seems long. Eurozone GDP wasunchanged in Q4, a little weaker than consensus expectations for a 0.1% rise, and up 0.9%."

"Spot is holding a narrow range in the low 1.04 area. The reversal in the EUR from Monday’s 1.0533 high signaled a short -term top/reversal in spot so losses are more likely than gains for now as the EUR corrects its rebound from 1.0178 over the second half of this month. Losses may extend to the low/mid 1.03s in the short run."