Dollar Gains Ground on Rising Rate Hike Expectations
The US dollar has gained ground as expectations of a Federal Reserve interest rate hike rise. A single inflation report could prompt the Fed to increase rates, according to market participants.
The European Central Bank (ECB) raised its deposit rate from 2.25% to 2.5%, but provided no forward guidance on future interest-rate changes. The ECB's statement emphasized a data-dependent approach, which contributed to a sell-off in the EUR/USD.
Christine Lagarde's hawkish rhetoric offered some support for the euro, highlighting the resilience of the European economy and investment in AI. However, market expectations remain cautious, with members of the Governing Council prepared to continue tightening but considering three additional rate hikes too aggressive.
The probability of a September Fed rate hike has risen to 72%, according to market participants, who are awaiting US consumer price data. Stronger-than-expected inflation figures could create an opportunity to add to short positions in the EUR/USD established around 1.164.