Some downside risk for Eurozone yields and the Euro in the month ahead – MUFG

EUR/USD holds ground above 1.0850. However, risks are tilted to the downside, economists at MUFG Bank report.

ECB expected to pause their hiking cycle at the September policy meeting

Unless there is significant upside surprise for core inflation in August, we would expect market participants to remain less confident that the ECB will hike again in September. 

The Eurozone rate market is currently pricing in around 14 bps of hikes for September implying that one more hike still judged as more likely than not right now. A decision by the ECB to pause their hiking cycle next month therefore still poses some downside risk for Eurozone yields and the Euro in the month ahead.