June 6 2024: The euro remained stable on Thursday as traders awaited the European Central Bank’s (ECB) policy meeting. Market participants are keen on the ECB’s remarks regarding future policy directions, with a rate cut at this meeting already anticipated.
- Euro Performance: Last at $1.0871, close to a recent high of $1.0916.
- ECB Expectations: Markets are pricing in approximately 63 basis points of rate cuts this year, suggesting a 25 bp cut at Thursday’s meeting and potentially one or two more cuts by year-end.
FX strategist Francesco Pesole from ING noted that any deviation from the expected cut could cause significant market reactions. However, it’s likely that the ECB will maintain a cautious stance on future rate cuts.
Global Currency Movements
- Canadian Dollar (CAD): Slightly firmed after the Bank of Canada cut its key interest rate, now at C$1.3689 per dollar.
- U.S. Dollar (USD): Facing downward pressure due to recent U.S. employment data indicating moderating growth, with markets anticipating nearly 50 basis points of Fed rate cuts this year.
Yen and Other Currencies
- Japanese Yen (JPY): Steady at 156.15 per dollar. Bank of Japan Governor Kazuo Ueda suggested a reduction in bond buying, hinting at a gradual exit from monetary stimulus. This follows a recent rally as investors covered yen-funded carry trades.
- Swiss Franc (CHF): Strengthened against both the euro and the dollar, with the dollar down 0.24% at 0.8914 francs and the euro down 0.25% at 0.9688 francs.
- British Pound (GBP): Slightly down against the dollar at $1.2777 and 0.11% down against the euro at 85.08 pence.
Market Reactions and Predictions
- Carry Trades Impact: The yen saw increased volatility earlier in the week due to unwinding of yen-funded carry trades, particularly influenced by political developments in Mexico.
- Rate Cut Influence: The prospect of rate cuts globally has generally supported risk-driven markets, contributing to fluctuations in various currencies.
Investors are keeping a close eye on central bank policies and economic data, particularly from the U.S. and Europe, to gauge the direction of interest rates and currency movements in the near term.
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