Traders are bracing for key central bank decisions this week, with the European Central Bank (ECB) expected to announce a 25-basis point rate cut, driven by softer economic activity and a faster-than-expected disinflation trend across the Eurozone. Markets are now pricing in a 95% probability of this move, signaling that downside risks to European macroeconomic conditions and interest rates are becoming more pronounced. These developments could exacerbate euro weakness, especially in currency pairs, as the region grapples with sluggish growth and subdued inflation.
In contrast, the U.S. dollar strengthened as traders reassessed expectations for the Federal Reserve’s rate cut trajectory. Despite softer inflation data, the outlook for U.S. interest rates remains less dovish compared to the ECB, fueling demand for the greenback.
Beyond Europe and the U.S., global markets will also focus on key economic indicators this week. In China, growth and retail sales data will provide fresh insights into the world’s second-largest economy as it faces ongoing challenges. Meanwhile, inflation readings from New Zealand, Canada, and the U.K. will be closely watched for signals on how these economies are managing price pressures and shaping their monetary policies.
With global central banks at the forefront of market attention, the week ahead promises significant volatility, particularly for currencies sensitive to interest rate differentials and economic outlooks.