EUR/USD Soars as ECB Hike Odds Rise and Dollar Falls
The EUR/USD pair has reached a three-month high of 1.1711 and is currently trading at 1.1684, up 0.05% from Wednesday's close.
The euro has added 2.50% in value over the past month and 0.62% over the past year, while the dollar index has fallen to an eleven-week low of 98.70.
The catalyst for this move was the Treasury's announcement on Wednesday that it would double the size of its longer-dated debt repurchases, which led to a collapse in long-term yields and a subsequent sell-off in the dollar.
Market pricing currently assigns an 84% probability to a 25 basis point European Central Bank (ECB) hike on September 10, taking the deposit rate from 2.25% to 2.50%, which would be the first increase since June and mark a reversal of the ECB's earlier easing stance.
The policy gap between the ECB and Federal Reserve is compressing for the first time in this cycle, as the ECB tightens rather than the Fed easing, creating a structurally different driver behind the euro rally.