Euro Treads Water Ahead of ECB Decision

The Euro has been trading in a tight range against the British Pound, hovering around 0.8590. The market is cautious ahead of the European Central Bank's (ECB) monetary policy decision, which is expected to hike its benchmark interest rate by 25 basis points to 2.5%. Analysts at Commerzbank warn that the ECB may not adopt a hawkish stance, and instead choose to wait and see how the situation in the Middle East develops before making any bold forward guidance.

Commerzbank analysts point out that the balance of risks is asymmetrically distributed today. For a stronger Euro, the ECB would need to be very hawkish, while for a weaker Euro, it would only need to disappoint market expectations. The UK's monthly Gross Domestic Product (GDP) and Industrial Production data for July are also expected to show a deteriorating trend, which could bolster the case for a steady monetary policy at the Bank of England's meeting next week.