Markets are watching this week's ECB meeting closely, but according to Commerzbank analysts, traders shouldn't expect it to give the euro a major boost. Their reading of EUR/USD is that the euro side of the pair has consistently played only a limited role, while the real driver of the exchange rate has been the US dollar.
The dollar sets the trend, the euro only nudges it
Commerzbank's analysts note that whenever EUR/USD makes a significant move, that move has almost always originated from the dollar side. Developments on the euro side, whether interest rate decisions or economic data, can speed up or slow down that existing trend, but they have not been able to reverse it outright. In practice, this means that if the dollar is in a strengthening phase, positive euro news might only soften the pace of the euro's decline rather than stop it. Likewise, if the dollar is weakening, disappointing euro news might only delay that slide rather than prevent it.
Why the dollar continues to dominate
The analysts point to a straightforward explanation for this pattern. The US dollar remains the world's dominant reserve currency, which naturally makes it the currency of choice for central banks, large institutional investors and multinational companies looking to hold reserves. Because of that role, decisions and shifts involving the dollar move far larger and more influential pools of capital than similar developments tied to the euro. In simple terms, the dollar commands a scale of capital flow that the euro currently cannot match, which is why dollar-side moves tend to carry more weight across global currency markets.
ECB tightening is about defence, not a big rally
One of the more notable points in Commerzbank's analysis is that investors appear to believe the ECB's previous policy rate had been set too low. In other words, the market's view was that the European Central Bank should have already raised rates further than it did. Against that backdrop, the current round of monetary tightening is not being read by investors as a move designed to push the euro sharply higher. Instead, it is being interpreted primarily as an effort to preserve the euro's existing value and prevent further erosion, rather than to meaningfully increase it. Put differently, the tightening is doing more defensive work, protecting the euro from slipping, than offensive work that would drive fresh gains.
What this means for traders and businesses watching the pair
The takeaway from this analysis is that anyone positioned for a strong euro rally on the back of ECB action alone may need to temper those expectations. As long as the dollar's own trajectory doesn't shift, ECB tightening by itself looks unlikely to generate a major upswing in EUR/USD. That also means market participants tracking the pair should pay closer attention to US-side developments, including American economic data and Federal Reserve policy signals, since those factors are shown to carry more influence over where EUR/USD ultimately heads.
