The euro steadied on Thursday, trading at around $1.13, as investors adjusted positions before a policy meeting by the European Central Bank where it is widely expected to hold interest rates unchanged at record lows.
President Mario Draghi is likely to drive home the case for ultra-loose monetary policy, but any hint that current policy settings are appropriate for the time-being could see the euro rise towards $1.15, a level seen last in October last year.
Last month, while the ECB delivered aggressive easing measures, the euro rallied after Draghi said there was probably no need for more rate cuts if the latest stimulus worked.
Since then, inflation expectations, based on the five-year, five-year forward rate, have eased a bit, keeping investors on the alert for any dovish tone from Draghi.
That is despite a sharp criticism by German Finance Minister Wolfgang Schaeuble, who said that negative interest rates were hurting small German savers and fuelling the rise of the eurosceptic AfD.
Euro vs yen
In London trade, the euro was flat at $1.1298, well below Wednesday’s peak of $1.1388. Against the yen, it edged down about 0.2 per cent to 123.84.
“The FX market is likely to pay particular attention today to what Draghi has to say about further rate cuts,” said Lutz Karpowitz, currency strategist at Commerzbank.
“Should he be any more outspoken on the matter than last time round, euro/dollar is likely to ease further. I would certainly steer clear of long positions.”
Fed policy review
Still, with three major central bank meetings looming, traders cited a lack of market conviction on direction bets. The Federal Reserve is scheduled to hold its policy review on April 26-27, while the Bank of Japan will meet on April 28.
BOJ officials are growing more receptive to stepping up monetary easing measures by buying more ETFs invested in shares, as weak global growth threatens Jana’s fragile economic recovery, sources have told Reuters.
While no action is expected from the Fed, traders will be looking for clues in its policy statement that the central bank is preparing markets for a June interest rate hike.
Fed Chair Janet Yellen has repeatedly said the Fed will be cautious in tightening policy, prompting markets to barely price in a rate hike this year.
US Treasury yields have fallen as a result, though they hit three-week highs on Wednesday as oil and stocks gained, which helped the dollar.