Euro bulls gear up for ECB rate call

EURUSD rallied into fresh 18-week highs on Wednesday as market sentiment tilts firmly into the risk-on side ahead of the European Central Bank’s latest rate call later on Thursday.

Broad market risk appetite remains pinned into the ceiling as markets fully price in a rate cut from the Federal Reserve on September 18.

ECB and Lagarde steal the show

Traders will be keeping eyes pinned to the ECB’s latest rate call slated for Thursday. The ECB is broadly expected to keep rates on hold for the time being as policymakers waver after an early quarter-point rate cut in June.

With the ECB forecast to keep rates steady, traders will be looking for any shifts in policy speech talking points from ECB President Christine Lagarde later in the European market session.

Rate markets have fully priced in at least a quarter-point rate trim when the Federal Open Market Committee (FOMC) gathers for a rate call on September 18, and July’s month-end meeting is still expected to keep rates flat.

According to the CME’s FedWatch Tool, 98% odds of a September rate cut are fully priced in, with rate traders seeing three cuts in 2024 compared to the Fed’s own modest projections of one or two.

Despite a broad-market dog-pile into Fed rate cut bets, Fedspeak from key policymakers maintains a dark tint to otherwise sunny skies.

Both Fed Governor Christopher Waller and Richmond Fed President Thomas Barkin noted that labour markets remain particularly robust despite easing inflation pressures.

EURUSD daily chart by TradingView

(Source: OANDA)