EUR/USD Sensitive to Hawkish Hold Disappointment

Commerzbank's Antje Praefcke predicts that the Federal Open Market Committee (FOMC) under Chair Kevin Warsh will likely deliver a 'hawkish hold', with markets already pricing at least one Fed rate hike by year-end.

Praefcke highlights that recent declines in energy prices and a softer June inflation print reduce the odds of an immediate hike, limiting upside for the US Dollar and making EUR/USD sensitive to any scaling back of Fed tightening expectations.

The market expects at least one interest rate hike from the Fed by the end of the year and sees a chance that more could follow next year as well. Praefcke notes that it is unlikely Warsh will adopt an extremely hawkish stance given the recent drop in energy prices and a surprisingly low June inflation rate.