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Euro steadies as markets weigh ECB and Fed interest rate expectations

  • EUR/USD trades flat on Friday but stays on track for modest weekly gains.
  • Softer US and Eurozone inflation data have reduced expectations of near-term rate hikes.
  • Markets still expect further tightening from both the ECB and the Fed later this year.

EUR/USD trades flat on Friday as traders reassess the inflationary impact of surging Oil prices amid escalating tensions in the Middle East, which have disrupted energy supplies through the Strait of Hormuz. At the time of writing, the pair trades around 1.1438 and is on track to end the week with modest gains.

Oil prices have surged around 12% this week, reinforcing expectations that major central banks may need to keep monetary policy tighter for longer to contain inflation. However, softer-than-expected June inflation data from both the United States and the Eurozone have reduced expectations of a near-term interest rate hike.

The European Central Bank (ECB) is widely expected to leave interest rates unchanged at 2.25% at next week's policy meeting, following a 25-basis-point (bps) rate hike in June.

Even so, another ECB rate hike later this year remains possible as inflation risks stay tilted to the upside, with traders fully pricing in a September increase.

In the United States, traders have scaled back expectations of a near-term Federal Reserve (Fed) rate hike, but markets still price in roughly a 75% chance of an increase by December, according to the CME FedWatch Tool.

Fed officials continue to stress the need to bring inflation sustainably back to the 2% target while noting that the labor market appears to have stabilized. This suggests that the central bank could raise interest rates later this year if inflation proves more persistent.

As a result, the US Dollar has regained some ground after falling earlier this week, with hawkish Fed expectations and geopolitical tensions lending support. The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, trades flat around 100.76 after hitting a more than three-week low of 100.35 on Wednesday.

Data released on Friday showed the preliminary University of Michigan Consumer Sentiment Index rose to 54.4 in July from 49.5 in June, beating the market forecast of 51. One-year Consumer Inflation Expectations from the University of Michigan eased to 4.2% from 4.6%, while the five-year measure held unchanged at 3.3%.

US Dollar Price Today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the British Pound.

USDEURGBPJPYCADAUDNZDCHF
USD0.02%0.18%0.06%-0.23%0.17%-0.02%-0.19%
EUR-0.02%0.16%0.04%-0.28%0.17%-0.04%-0.21%
GBP-0.18%-0.16%-0.13%-0.43%-0.01%-0.19%-0.39%
JPY-0.06%-0.04%0.13%-0.30%0.13%-0.08%-0.25%
CAD0.23%0.28%0.43%0.30%0.43%0.23%0.05%
AUD-0.17%-0.17%0.01%-0.13%-0.43%-0.21%-0.39%
NZD0.02%0.04%0.19%0.08%-0.23%0.21%-0.18%
CHF0.19%0.21%0.39%0.25%-0.05%0.39%0.18%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

Author

Vishal Chaturvedi

I am a macro-focused research analyst with over four years of experience covering forex and commodities market. I enjoy breaking down complex economic trends and turning them into clear, actionable insights that help traders stay ahead of the curve.

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