EUR/USD Continues to Rise Above 1.1100 Ahead of ECB Decision

In the European session, EUR/USD has extended its gains, trading above 1.1100 for the second consecutive day. The pair remains buoyant due to a weakening US Dollar and positive market sentiment ahead of the European Central Bank’s (ECB) monetary policy decision.

During Thursday’s European trading hours, EUR/USD gained bullish momentum and surpassed the 1.1100 level. The short-term technical outlook indicates a bullish bias, but the pair’s future movements will largely depend on the ECB’s policy announcements and the release of Gross Domestic Product (GDP) data from the US later in the day.

The US Federal Reserve (Fed) raised its policy rate by the expected 25 basis points (bps), setting it within the range of 5.25-5.5%. In the subsequent press conference, Chairman Jerome Powell reiterated the Fed’s data-dependent approach and refrained from confirming another rate hike for the rest of the year. Powell also acknowledged that the current policy stance was already restrictive.

While the Fed has not ruled out further tightening, market sentiment suggests that the central bank might have reached the terminal rate, unless there are significant upside surprises in employment or inflation data.

The ECB is widely expected to increase its key rate by 25 basis points (bps). Recent macroeconomic data releases from the Eurozone have highlighted a slowdown in economic activity.

If ECB President Christine Lagarde adopts a cautious tone regarding future policy tightening and refrains from committing to a rate increase in September, it could weaken EUR/USD’s bullish momentum. Conversely, the Euro could gain further strength if Lagarde downplays recession concerns and emphasizes the need for a tight policy to curb inflation.

On the other hand, the US Bureau of Economic Analysis is set to release the first estimate of second-quarter Gross Domestic Product (GDP) growth on the same day. Market expectations indicate an annualized GDP growth of 1.8% in Q2, following a 2% expansion in the first quarter. A GDP growth figure that exceeds forecasts could potentially boost the US Dollar and exert downward pressure on the EUR/USD pair.