The euro sank to a new two-month low against the dollar on Thursday as investors waited for the European Central Bank to confirm that borrowing costs will get cheaper and that it will start buying bonds again.
Money markets are pricing in a 50% chance of a 10 basis points interest rate cut by the ECB on Thursday, a smaller probability than last week, but some expect that President Mario Draghi will open the door for further cuts down the road or for more quantitative easing.
However, some analysts expect the central bank to be way less dovish and only tweak its forward guidance by re-introducing the easing bias.
These opposing views in the market are reflected in euro overnight implied volatility jumping to 12.73, its highest since December.
The euro dropped at $1.1126. The ECB announces its rate decision at 11:45 GMT, followed by a news conference at 12:30 GMT.
Source : Reuters