Markets price 24 bps of Fed tightening by year-end while ECB’s 25 bps hike may lack hawkish guidance, weighing on the euro.
The euro remains vulnerable against the dollar as the European Central Bank is expected to deliver a 25 bps rate hike today but stop short of endorsing further tightening. The move would lift the deposit rate to 2.25%, framed as an insurance measure against inflation risks rather than a signal of sustained hikes.
Traders have slightly trimmed Fed rate hike bets to 24 bps by year-end, down from 25 bps before the latest US CPI data. While the Fed is poised to drop its easing bias, focus will shift to the dot plot and forward guidance, with markets watching for clues on the pace of future tightening.
Elevated energy prices, driven by the US-Iran standoff, continue to pressure the Fed toward further action. The ECB’s updated projections may show higher inflation for 2026 but no change for 2027-2028, limiting euro support.