The market is pricing a 25bp ECB rate cut today with a 97% probability, UOB Group’s FX analysts Quek Ser Leang and Peter Chia note.

EUR/USD bounce to the 1.0900/0920 area

“We doubt the ECB will disappoint those expectations, but we see upside risks to the short end of the EUR rates curve today. This is because the market now virtually prices a 25bp rate cut at each of the next six meetings and we do not believe the ECB is ready to capitulate and support faster easing (some 50bp cuts) towards the neutral rate near 2.00/2.25% for the deposit rate.”

“If we're right, EUR/USD could be due a corrective bounce to the 1.0900/0920 area, although such gains may prove temporary. Perhaps a cleaner story for euro strength today will be EUR/CHF. Here we feel EUR/CHF has very much been dragged around by short-dated EUR rates this year and the view that the Swiss National Bank has a floor for the policy rate at 0.50%.”