Euro rebounds from ECB-driven losses

The euro firmed on Friday, amid a market correction which helped it recoup the bulk of the losses seen in the wake of the European Central Bank’s (ECB) interest rate decision earlier in the week.

Meanwhile, the pound is trading sideways so far this morning, with GBP/EUR flat at €1.1620 and GBP/USD stable at $1.2388. GBP/CAD is muted at CA$1.6727, while GBP/AUD and GBP/NZD hold steady at AU$1.9234 and NZ$2.0969, respectively.

Looking ahead, a lull in impactful data could result in thin trading conditions in the currency market today.

What’s been happening?

The euro closed last week’s session on a positive note, with EUR exchange rates appearing to benefit from a modest market correction.

This allowed the single currency to recover a good chunk of the losses stemming from the European Central Bank’s (ECB) latest interest rate decision.

Meanwhile, the US dollar was left to trade sideways on Friday after a larger-than-expected drop in US consumer sentiment offset a modest uptick in US Treasury yields.

The pound was also rangebound at the end of last week, as a lack of UK data left the currency to trade without a clear direction.

What’s coming up?

Turning to the start of this week, there’s a notable lull in economic data, which could limit movement in the currency market, particularly as investors turn their focus to some high impact events coming up in the first half of the session

For USD investors the focus will undoubtedly be on the Federal Reserve’s interest rate decision on Wednesday.

While the Fed is expected to leave rates on hold, analysts are split on whether the US central bank will signal an end to its hiking cycle. Which could inject some volatility into the US dollar this week.

Wednesday will also see the publication of the UK’s consumer price index, coming just ahead of the Bank of England’s (BoE) own rate decision. This could see the pound strengthen if an uptick in inflation is seen as buoying BoE rate hike expectations.

In the meantime, the Eurozone’s own CPI figures may have a limited impact on the euro, unless there is a revision to August’s finalised figures.