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US Dollar steady as traders brace for double-edged ECB rate decision


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  • The US Dollar is in the red, though marginally, while looking for direction. 
  • All eyes are on the other side of the Atlantic with the ECB meeting.
  • The US Dollar Index is expected to make waves on the PPI and Retail Sales numbers. 

The US Dollar (USD) faces a next big hurdle in its attempt to head higher and maintain its place as ‘king Dollar’. First and foremost, the European Central Bank (ECB) is holding its interest-rate decision this Thursday. Markets are very split on the possible outcome of the meeting, with a 50-50 chance of a hike or no hike.

The ECB rate decision and statement will be issued at 12:15 GMT, 15 minutes ahead of the US Producer Price Index and Retail Sales numbers. A big pickup in volatility is expected, with the  US Dollar moving across the board, particularly  with EUR/USD as the most volatile pair. 

Daily digest: US Dollar explosive 

  • Just hours before the ECB rate decision, the Chinese People’s Bank of China (PBoC) has cut its Reserve Requirements Ratio by 0.25%. The Yuan eases a touch against both Euro and US Dollar. The cut was expected by analysts and does not trigger any big market movements. 
  • Big fireworks are expected on Thursday from both the macroeconomic and central bank corners.
  • At 12:15 GMT, the European Central Bank (ECB) will issue its latest rate decision. Markets are split 50-50 for either a 25 basis point hike to 4% on the deposit rate, or remain unchanged at 3.75%.
  • At 12:30 GMT, a batch of data is to be released out of the US.. The most important data release will be the Producer Price Index (PPI). The yearly component for August is expected to head from 0.8% to 1.2%. The core PPI, which excludes the more volatile components of food and energy, is expected to tick lower from 2.4% to 2.2%. 
  • Another important element at 12:30 GMT are the Retail Sales numbers. Overall retail sales for August are expected to increase 0.2%, lower than the 0.7% rise seen in July.. Retail sales excluding autos are expected to head from 1% to 0.4%. Watch out for any revisions from previously reported data that might trigger knee jerk reactions.
  • Around 12:45, ECB president Christine Lagarde will take the stage and comment on the ECB’s rate decision. 
  • The macroeconomic calendar will end its day near 14:00 GMT, with US Business inventories data for July. Expectations are from a small 0.1% increase after stagnating in June..
  • Asian equities are overperforming this Thursday, with both Japanese and Chinese indices in the green. European equities went higher on Wednesday after head of the European Commission President Ursula von der Leyen issued new rules which will support local EV car builders and make it more difficult for China to dump cheap EV-cars in the bloc.
  • The CME Group FedWatch Tool shows that markets are pricing in a 97% chance that the Federal Reserve will keep interest rates unchanged at its meeting in September after the recent US inflation numbers.  
  • The benchmark 10-year US Treasury bond yield trades at 4.25% and is taking a small step back as the volume of new debt issuances is slowing down a touch. 

US Dollar Index technical analysis: On the lookout for Euro

The Greenback’s moves on Thursday will largely depend on where the Euro will head to. The ECB rate decision will have a binary impact on the US Dollarindex (DXY) once all data is out and markets have decided if the ECB rate decision was hawkish or dovish. Expect to see a very volatile window between 12:00 GMT and 14:00 GMT with possibly no real direction to be found until after all the dust has settled. 

The new high to watch is at 105.16, both the high from last Thursday and a six-month high. The US Dollar Index first needs to gain back its lost territory from this Monday and break above the high of 104.93. Beyond 105.16, the next level to watch is 105.88, the high of 2023.

On Monday, 104.44 kept it together and refrained from allowing the DXY from selling off any further. The high of August 25 did its job and acted as a pivotal level. Should the uptick from this Tuesday reverse and 104.44 gives way, a substantial downturn could take place to 103.04, where the 200-day SMA comes into play for support. 

ECB FAQs

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region.
The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa.
The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro.
QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.

Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.