ECB Rate Hike Fails to Lift Euro Amid Market Expectations of Further Hikes
The European Central Bank (ECB) raised interest rates for the second time this year and increased its inflation projections, which indicates another rate hike in December. However, the EUR/USD has retreated due to market expectations of almost two more rate hikes by year-end and an additional 40 basis points by mid-2027.
Michael Pfister at Commerzbank notes that the ECB's hawkish shift is likely to disappoint market expectations. The bank now anticipates inflation above 2% for an extended period, which suggests another interest rate hike in December.
The press conference initially helped the euro recover its losses, but this recovery was short-lived. The EUR/USD is now trading lower due to a stronger US dollar and higher market expectations of ECB rate hikes.