EUR/USD Stuck on Rate Differential Ahead of ECB Decision

The EUR/USD price has been stuck in a flat range of 1.16298, up just 0.05% on the day and reflecting the market's anticipation of upcoming macroeconomic events.

The European Central Bank (ECB) is set to announce its decision on interest rates on Thursday, September 10, with markets fully pricing in a 25-basis-point increase to 2.5%, which would be the second hike of the cycle.

This move comes as the euro area inflation accelerated to 3.30% in August from 2.90%, driven mainly by energy costs, providing the ECB with cover to tighten its monetary policy.

The current rate differential between the ECB's deposit rate at 2.40% and the Federal Reserve's federal funds rate at 3.75% is 135 basis points, which explains why EUR/USD is trading at 1.1630 rather than a much higher value.