EUR/USD Set for Decisive Week Amid ECB Rate Hike and US Inflation Data

The EUR/USD is set for a potentially decisive week as the European Central Bank (ECB) prepares to raise interest rates and the US releases its inflation data. The ECB decision, widely expected on September 10, will likely be followed by a 25-basis-point move, but traders are more interested in the central bank's guidance on future policy.

European inflation accelerated to 3.3% in August, driven mainly by energy prices, which rose to 14.3%. This has strengthened expectations for further ECB tightening, despite the risk of economic slowdown due to high energy costs. All 65 economists surveyed by Reuters anticipate a 25-basis-point deposit rate hike to 2.50%, and traders will focus on ECB President Christine Lagarde's communication and updated projections.

The key question is whether the ECB considers this increase the final tightening cycle or leaves room for additional hikes, which could significantly impact the EUR/USD trajectory. A clearly hawkish ECB could support the euro if policymakers signal that another rate increase remains possible. However, continued geopolitical tensions and elevated oil prices might keep headline inflation above target, forcing the ECB to maintain a restrictive stance.