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Euro: ECB tightening supports currency
Confirmed
In Short: The European Central Bank (ECB) is expected to raise interest rates by 25 basis points this week, supported by above-target inflation and a stronger economic outlook, according to Brown Brothers Harriman.
Brown Brothers Harriman’s (BBH) Elias Haddad expects the ECB to deliver another 25 bps hike this week, taking the policy rate to 2.50%, supported by above-target Eurozone inflation and a firmer growth outlook. 'Above target Eurozone inflation and a firmer growth outlook give the ECB scope to raise rates,' Haddad noted.
The ECB will also publish its September macroeconomic projections, with no material changes expected to the Eurozone GDP and inflation forecasts. 'Improving leading economic indicators and slightly softer core inflation are broadly offset by higher energy prices,' Haddad added, citing the 8% increase in Brent crude oil and 44% increase in natural gas prices since the June ECB meeting.
Meanwhile, the upbeat US NFP report lifted Fed rate hike bets, which, along with escalating US-Iran tensions, underpins the safe-haven US Dollar and caps the currency pair. Rising geopolitical tensions between the US and Iran, coupled with a resilient US labor market, keep Federal Reserve (Fed) tightening expectations elevated and could weigh on BTC.
While the ECB is poised for a modest rate hike, the dollar’s safe-haven appeal amid geopolitical tensions and terms-of-trade challenges for Europe are weighing on the euro. The EUR/USD currency pair declined modestly to 1.1578 on September 2, 2026, reflecting a complex interplay of hawkish Federal Reserve signals, rising inflation in the Eurozone, and broader dollar strength.
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- Beyond interest rate expectations, the euro is facing structural headwinds related to Europe’s reliance on energy imports.
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