The euro traded flat at $1.17 against the US dollar on Wednesday, with investors adopting a cautious stance ahead of the European Central Bank (ECB) policy meeting and key US inflation data.
The single currency showed little reaction to French political developments, where President Emmanuel Macron appointed Sébastien Lecornu as the new prime minister after François Bayrou was ousted in a parliamentary confidence vote over budget plans.
According to Commerzbank analyst Antje Praefcke, the euro-dollar movement remains largely dollar-driven, with the political reshuffle in Paris already anticipated by markets.
ECB policymakers are expected to keep interest rates unchanged for the second consecutive meeting, as eurozone inflation continues to align with the central bank’s 2% target for the third month running. However, Bank of America has warned that future rate cuts could be deeper than current market expectations due to persistent growth risks in the euro area and tight financial conditions.
Meanwhile, in the United States, inflation is projected to have climbed to 2.9% in August, up from 2.7% in July, marking the highest level since January.
This outlook, coupled with weaker labour market data last week, has strengthened expectations of a Federal Reserve rate cut in September, with some investors even pricing in the possibility of a larger-than-usual adjustment.
The euro’s near-term trajectory now hinges on ECB signals on policy direction and the outcome of upcoming US inflation readings, which could influence global capital flows.
