Investors bet on a European Central Bank rate increase next month amid Fed uncertainty, lifting EUR/USD above 1.18 if the DXY Index falls below 98.
Markets have fully priced in a European Central Bank rate hike at its next meeting, contrasting with Federal Reserve divisions over policy direction. The Fed’s April meeting saw an 8-4 vote to hold rates, with dissenters split between a 25-basis-point cut and removing easing bias language.
ECB President Christine Lagarde suggested Fed independence remains at risk amid internal reforms, while other central banks adopt a more defensive stance. The Bank of Japan and Reserve Bank of New Zealand are also expected to tighten policy soon.
A decline in the DXY Index below 98 could push EUR/USD above 1.18, reflecting shifting expectations for major central banks.