Markets are relatively quiet today as we wait for some European data later in the week. The EUR/USD pair struggles to gain any meaningful traction so far on Tuesday and oscillates in a narrow trading band.

Traders seem reluctant to place aggressive directional bets and prefer to wait on the sidelines amid the uncertainty over the timing of a potential interest rate cut by the European Central Bank. The first ECB policy rate cut is projected to take place in April and the markets have been pricing in a total reduction of 135 basis points (bps) by the end of 2024.

That said, ECB President Christine Lagarde signaled last week that borrowing costs will likely start coming down in the summer and will see if the incoming economic data supports such a move.

The market focus will remain glued to the ECB meeting on Thursday, which will play a key role in influencing the shared currency and provide some meaningful impetus to the EUR/USD pair.

In regard to the US and the Fed, investors have been scaling back their expectations for a more aggressive policy easing in 2024 in the wake of a still-resilient US economy and the recent hawkish remarks by a slew of Fed policymakers. This remains supportive of elevated US Treasury bond yields.

EUR/USD is relatively flat on the day. The market is taking a cautious stance ahead of the ECB meeting on Thursday. US Equities continue to rise.

GBP/USD is up on the day and continues in an upward direction as the BoE is expected to maintain its current restrictive policy stance. This sentiment is supported by a Reuters poll in which economists anticipate the Bank of England to keep the policy rate unchanged at 5.25% during the February meeting.

USD/CAD is attempting to retrace its recent gains on the back of firmer oil pricing. The Canadian Dollar experienced losses against the US Dollar in the previous session, which could be attributed to the risk aversion sentiment over the escalated geopolitical situation in the Middle East.

USD/MXN is gaining more ground on improved US treasury yields. The recent data on Mexico's Retail Sales indicates a slowdown in the growth of consumer spending. Looking ahead, the Banxico is set to release the 1st half-month Inflation data for January on Wednesday.

Market expectations anticipate a reading of 0.38%, declining from the previous reading of 0.58%, with core inflation expected to report a figure of 0.28% against the previous reading of 0.46%. These numbers will be closely monitored for their potential impact on monetary policy and the performance of the Mexican Peso.