The euro held steady on Monday as market participants adopted a cautious stance ahead of this week’s European Central Bank (ECB) policy meeting.
Following June’s rate cut, the ECB is widely expected to keep interest rates unchanged, with policymakers favoring a “wait-and-see” approach amid growing global uncertainty.
Investors remain split over the timing of the next move, which could depend on the evolution of US-EU trade tensions.
At the same time, the currency could continue to benefit from a weaker dollar as investors contend with the impact of US policies on the US economy.
Traders could continue to monitor developments around the trade negotiations between the US and the EU. Despite threats from Washington of tariffs on European imports, the EU remains favorable to a diplomatic approach. However, a failure to seal a deal could affect sentiment and growth prospects and could fuel more demand for government bonds. The latter could drive yields down and could weigh on the euro.
Looking ahead, traders will closely monitor the ECB’s communication. A dovish tone could place downward pressure on the euro and reignite expectations for further monetary easing before year-end. A more cautious tone could continue to support the euro.
