EUR/CAD held mostly steady on Thursday, not far from recent six-week high, as market focus now sets on the ECB’s policy decision later in the day.
The European Central Bank is largely expected to keep its main refinancing operations rate intact at a 22-year high of 4.5% on Thursday, following 10 consecutive rate hikes since July 2022.
Additionally, the deposit facility rate will probably be left unchanged at an all-time high of 4%.
“With the European economy soft and inflation easing, we expect attention will soon turn to the likely timing of rate cuts,” Carol Kong, currency strategist at Commonwealth Bank of Australia, was quoted as saying by Reuters.
“At this stage we have the first cut penciled in for June 2024.”
ECB policy makers were divided on the decision to either hike interest rates or to pause the current cycle of tightening, the minutes from the ECB’s September meeting showed.
Some policy makers were concerned that pausing for the first time in more than 1 year could be taken by markets as a sign of the central bank’s weakening resolve.
As a result, this could trigger speculation that the tightening cycle was nearing its end and, thus, it would heighten the risk of a re-surging inflation.
On the other hand, officials who supported leaving interest rates on hold said the economy had considerably weakened, while inflation would likely return to the 2% target by the end of the projection horizon.
Meanwhile, the Bank of Canada left the target for its overnight rate without change at a 22-year high of 5% at its October meeting, in line with market expectations.
The decision extended the tightening pause for a second policy meeting, as officials noted past rate hikes had already dampened economic activity and restrained price growth.
The central bank said future rate decisions would be based on the latest economic signals.
As of 7:06 GMT on Thursday EUR/CAD was inching down 0.05% to trade at 1.4564. Earlier this week, the minor Forex pair went up as high as 1.4616. The latter has been the pair’s strongest level since September 12th (1.4621).
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