Market expectations of further ECB tightening support the Euro amid rising oil prices and Middle East tensions.
The Euro holds above 1.1400 against the US Dollar, defying rising oil prices and geopolitical risks. Analysts attribute the resilience to bets on additional European Central Bank rate hikes, with markets pricing in two to three more increases over the next year.
The ECB is set to maintain its Deposit Facility rate at 2.25% later today, following a 25 basis points hike in June. Cooling inflation earlier this month gave the bank room to assess developments, but surging oil prices have revived expectations of further tightening.
Short-term yields in Europe have climbed more sharply than in the US, narrowing yield spreads against the Dollar. Analysts note this shift reflects growing confidence in the ECB’s hawkish stance relative to the Fed.