The EUR has remained under pressure, mainly on the back of rising expectations of the ECB cutting the deposit rate negative at next week’s policy meeting.
This was mainly due to central bank Executive Board member Yves Mersch saying that they do not intend to narrow the interest rate corridor and that the deposit rate would therefore be cut should the benchmark rate be reduced. Nevertheless, he stressed too that it will be up to the Governing Council to decide on such a step.
Although additional EUR downside cannot be excluded ahead of next week’s ECB meeting, it must still be considered that market expectations regarding more aggressive policy action have been increasing considerably on the back of ECB members’ dovish rhetoric.
This in turn suggests that upside correction risk remains intact, unless the ECB exceeds expectations.