The euro fell against a basket of major currencies in European trading on Thursday, losing its four-month high against the dollar and on track to turn to its first decline in three days on aggressive profit-taking as markets shy away from new positions ahead of the ECB's policy decision.
The ECB is likely to refrain from cutting rates this time around, but may give some clues about the future of U.S. interest rates by the end of the year.
price
EUR/USD was down 0.1% today at $1.0928, hitting a session high of $1.0941.
The currency pair rose 0.4% to a four-week high of $1.0948 on Wednesday.
The ECB
Inflation accelerated in May and June and analysts expect European interest rates to remain unchanged this month, with markets now awaiting the outcome of the European Central Bank's (ECB) meeting on Thursday.
After a long wave of hikes, the ECB began cutting interest rates last June for the first time since 2016 but has refrained from making further moves.
European interest rate cuts
Recent euro zone inflation data and comments from ECB officials have reduced the likelihood of the ECB cutting interest rates multiple times this year, leading investors to lower their forecasts for euro zone rate cuts to 50 basis points from 75 basis points in 2024.
US Rates
Meanwhile, following less aggressive comments from Fed Chairman Jerome Powell in Washington this week, the probability of the Fed cutting rates in September and November has risen to 100%.
Rate Gap
The interest rate differential between Europe and the United States is currently 125 basis points in favor of the United States, but is likely to narrow to 100 basis points by September.