Euro gains support amid hawkish ECB expectations, subdued US Dollar
EUR/USD inches higher after posting minor losses in the previous day, trading around 1.1670 during the Asian hours on Tuesday. The pair finds support as rising oil prices, elevated bond yields, and escalating Middle East tensions drive Eurozone inflation concerns.
The Euro (EUR) experienced a slight uptick against the US Dollar (USD) on Tuesday, trading around 1.1670, as hawkish expectations from the European Central Bank (ECB) and subdued US Dollar sentiment drove the pair. Inflation concerns in the Eurozone, fueled by rising oil prices, elevated bond yields, and Middle East tensions, have raised anticipations for a more aggressive rate-hiking stance from the ECB.
The bank is expected to raise rates by 25 basis points in September, following its June tightening. Meanwhile, Eurozone bond yields remain at multi-decade highs, mirroring US yields driven by concerns over Washington’s deficit spending and the Federal Reserve's (Fed) potential complacency on inflation. Scotiabank strategists noted that recent macro news has been relatively light, with limited fundamental releases ahead of the German IFO business sentiment figures scheduled for release on Tuesday.
The shift in rate dynamics has modestly weighed on the EUR, as widening yield spreads have reduced some EUR support as US Treasury yields have climbed over the past week. In contrast, the US Dollar has faced pressure after the US Treasury announced plans to double its buyback operations for longer-dated bonds, with Treasury Secretary Scott Bessent potentially utilizing nearly $1 trillion from the Treasury General Account to fund these operations.
Geopolitical tensions also escalated as the US expanded secondary sanctions against entities dealing with Iran, with Bessent warning that a major financial institution could face sanctions this week, explicitly noting that China will not be exempt. Looking ahead, market participants are closely monitoring key US economic events, including consumer confidence data on Tuesday, the Personal Consumption Expenditures (PCE) price index on Wednesday, and Federal Reserve Chair Kevin Warsh's speech on Friday at the Jackson Hole symposium.
Scotiabank strategists highlighted that this week's "calendar and event risk" is significant, suggesting that investors may reassess exposures and potentially benefit from a more cautious stance ahead of upcoming risk events. The Euro is the official currency of 20 European Union countries in the Eurozone, often trading against the USD, which is the most heavily traded currency globally, accounting for 31% of all foreign exchange transactions.
Written by urgent.news from FXStreet's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
