EUR/USD Range-Bound Ahead of Central Bank Decisions
The EUR/USD has been trading in a narrow range of 1.1590 to 1.1650 as markets wait for two central banks to make their decisions. The European Central Bank is expected to raise rates on Thursday, with all 65 economists in a Reuters poll forecasting a 25 basis point increase to 2.50%. Money markets also price the same outcome with near-certainty.
The Federal Reserve may follow suit next week, with futures implying a roughly 58% probability of a September increase, up from about 52% before Friday's report. This symmetry is unusual and sets the framework for this EUR/USD analysis.
When both central banks are tightening, the pair doesn't trade on direction but rather on which one sounds more hawkish at the margin. The question traders are positioned around is whether the ECB treats September as the end of the tightening cycle or leaves the door open to more.