Falling crude prices near $84.00 for Brent and $79.00 for WTI weaken ECB rate hike expectations despite a slight euro uptick.
The euro edged 0.15% higher to near 1.1400 on Tuesday, supported by a third consecutive session of declining crude oil prices. Brent crude fell to around $84.00, while West Texas Intermediate dropped to $79.00, marking a 16% decline from last Thursday’s peak.
The European Central Bank held its deposit rate at 2.25% last week but signaled a potential quarter-point hike in September. However, falling energy costs, which drove euro-area inflation down to 2.8% YoY in June from 3.2% in May, may undermine that outlook. ECB staff projections for 2026 inflation near 3.0% hinge on energy prices.
While cheaper oil improves terms of trade, it also reduces inflationary pressure, narrowing the rate differential with the U.S. The euro’s limited gains reflect this trade-off, as markets reassess the likelihood of further ECB tightening.