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Euro Rises as ECB Rate Hike Expected, Traders Eye US Inflation Data
Confirmed
In Short: The Euro strengthened against the US Dollar as traders anticipate a 25 basis point rate hike from the European Central Bank, influenced by rising energy prices due to the US-Iran conflict.
Traders are focusing on the upcoming ECB rate decision, fully pricing in a 25 basis point hike to 2.5%, as Eurozone inflation rose back above 3% in August. According to ING's global head of macro, Carsten Brzeski, the ECB is expected to hike rates, adding, 'We expect the ECB to hike rates by 25 basis points. Another insurance rate hike.
The EUR/USD pair holds a constructive near-term bullish bias, supported by the ECB's rate hike expectations and the pair's stability above the Bollinger middle band and the 100-day moving average. The Relative Strength Index near 57 suggests positive but not overstretched momentum, indicating that buyers still retain the upper hand as long as price holds above the mid-band support.
Traders are also awaiting key US inflation data, including the Producer Price Index (PPI) and Consumer Price Index (CPI), which could influence the US Dollar's strength. Any signs of hotter inflation in the US could lift the Greenback and act as a headwind for the EUR/USD pair.
The US inflation data is crucial, as it could impact the Federal Reserve's monetary policy decisions, which in turn could affect the US Dollar's value. The latest data from the New York Fed's Survey of Consumer Expectations showed that households' inflation expectations dipped in the medium-term, while expectations about the labor market remained mixed.
What's still developing
- Expectations of a rate hike from the European Central Bank (ECB) provide some support to the Euro (EUR) against the US Dollar (USD).
- The ECB is widely expected to hike interest rates at its September policy meeting on Thursday, driven by surging energy prices due to the ongoing US-Iran conflict.
- "Or for those who don’t like this term: a dovish rate hike,” Brzeski added.
- The Centers for Disease Control and Prevention is excluding two measles deaths reported by Pennsylvania health officials last week from its latest update of national measles data.
- The New York Times reported Monday that the CDC’s new director, Erica Schwartz, is behind the decision.
- Schwartz—less than a month into the job—reportedly ordered CDC staff to add an unusual statement onto the CDC’s website for measles surveillance data.
- When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy.
- Expectations in August of higher unemployment rate were highest since April 2020.