EUR Holds Steady vs USD After Recovery from Trade-Driven Losses – Scotiabank

EUR/USD Holds Ground as Traders Eye ECB Rate Cut Path

The Euro (EUR) remains virtually unchanged against the US Dollar (USD) heading into Thursday's North American session, after recovering from steep losses recorded during the Asian session triggered by trade-related headlines.

According to Scotiabank, market sentiment is now driving EUR/USD moves, with the pair closely following risk reversals (options market indicators) rather than traditional fundamentals like bond yield spreads. This indicates a short-term disconnect between price action and economic indicators.

“Sentiment appears to be in the driver’s seat as EUR/USD diverges from yield spreads,” Scotiabank analysts noted.

The lack of fresh euro area macroeconomic data this week has kept the market focused on headline risk and market positioning.

ECB Rate Cut Expectations Price In at Least 50bps by Year-End

Markets have now fully priced in a 25 basis point interest rate cut at the European Central Bank (ECB) meeting next Thursday, with expectations for at least one more 25bps cut by year-end. However, there remains a clear disconnect between ECB policymakers and the market on the pace and extent of future monetary easing.