Commerzbank expects a Fed hawkish hold to limit USD gains, with EUR/USD sensitive to shifts in rate hike expectations.
The Federal Reserve is poised to deliver a hawkish hold at its upcoming meeting, with markets pricing at least one rate hike by year-end. Recent declines in energy prices and softer June inflation data reduce the likelihood of an immediate hike, capping USD upside.
Investors anticipate a potential rate increase this year, with additional hikes possible in 2025. However, Fed Chair Kevin Warsh is unlikely to adopt an overly aggressive stance given recent economic data.
EUR/USD remains vulnerable to adjustments in Fed tightening expectations. A less hawkish tone could trigger a USD correction, supporting the euro.