EUR/USD and GBP/USD Rally Amid Policy Divergence
The US dollar faces pressure from monetary policy divergence as the euro and sterling benefit from more hawkish central banks. According to a Reuters survey, 57 out of 69 economists expect the ECB to raise its deposit rate to 2.50 percent in September, keeping inflation above the ECB's target of 2 percent.
The pound is also gaining due to policy divergence, with UK growth exceeding expectations at 0.4 percent in the second quarter. The Bank of England's Chief Economist, Huw Pill, suggests that this growth warrants tighter policy, and markets are calling for at least one additional hike by the BoE in 2026.
The major concern for all three currencies is the Middle East, with renewed US-Iran tensions and ongoing disruptions through the Strait of Hormuz posing risks for energy-related inflation shocks.