MUFG forecasts a 25bp ECB rate hike in September as 2-year yield spreads favor EUR/USD recovery amid US yield decline risks.
The Euro, July’s weakest G10 currency, shows signs of recovery as the 2-year yield spread turns favorable. MUFG analysts cite potential US yield declines as a catalyst for renewed EUR/USD upside in the coming weeks.
ECB minutes revealed no new policy insights but reinforced openness to another rate hike, aligning with MUFG’s forecast of a 25 basis-point increase in September. Long-term inflation expectations remain anchored, though energy price spikes could alter the outlook.
Market focus shifts to yield dynamics, with US yields poised for a potential downturn, supporting further EUR gains. The ECB’s stance and yield trends remain key drivers for the currency pair’s trajectory.