EUR/USD Rises Ahead of Hawkish ECB Decision
EUR/USD has been moving higher, supported by more energy-sensitive European yields and expectations of a hawkish ECB. According to MUFG's Lee Hardman, markets are almost fully pricing another rate hike by December, which raises the bar for a hawkish surprise from the ECB.
The pair has moved back above its 200-day moving average near 1.1635 ahead of today's ECB meeting. Market attention will now shift to the ECB's policy update later today.
Market participants are anticipating a hawkish policy update from the ECB, taking into account higher energy prices over the summer and the resilience of the euro-zone economy to the energy price shock so far this year. This will provide justification for the ECB to deliver a second hike of the current tightening cycle, lifting the policy rate up to the top of the ECB's estimated range for the neutral policy rate of 1.75%-2.50%.
European yields have proven more sensitive to higher energy prices over the summer than yields in the US. The 2-year US Treasury yield increased by around 4bps yesterday, one reason why EUR/USD has been moving gradually higher over the last couple of months.