Euro steady ahead of ECB decision and EU-US trade talks

The euro held steady just above the $1.16 mark, maintaining a narrow trading range as investors positioned themselves ahead of the European Central Bank’s closely watched policy decision and monitored the latest developments in EU-US trade negotiations.

With the ECB expected to leave interest rates unchanged on Thursday—following eight consecutive cuts—markets are bracing for a cautious tone from policymakers, who appear inclined to adopt a wait-and-see approach amid mounting external pressures.

Uncertainty surrounding the potential impact of steeper-than-anticipated US tariffs, coupled with the euro’s recent strength, has clouded the outlook for growth and inflation in the eurozone. A stronger euro typically weighs on export competitiveness, while escalating trade tensions threaten to dampen demand for European goods and complicate the region’s fragile recovery. Against this backdrop, investors are seeking clarity on how the ECB plans to navigate these crosscurrents without reigniting inflationary risks or derailing economic momentum.

In parallel, EU diplomats are preparing to convene as early as this week to assess and coordinate contingency measures in the event of a breakdown in negotiations with US President Donald Trump.

The risk of a no-deal scenario has risen in recent days, as Trump’s rhetoric on trade has become more aggressive, raising concerns that punitive tariffs on European automotive or industrial exports could materialize after the August 1 deadline.

While the euro has shown resilience in recent sessions, its near-term direction remains highly sensitive to both policy signals from the ECB and the evolving trade landscape. A dovish surprise or a further escalation in US trade measures could quickly weigh on the currency, while any signs of progress in transatlantic talks or a more hawkish tilt from the central bank might provide upside support.

For now, currency markets remain in a holding pattern, awaiting pivotal decisions that could shape sentiment across global financial markets in the weeks to come.