EUR/USD Supported by ECB Tightening Expectations, Policy Divergence Continues

The euro has maintained its support against the US dollar, as market expectations for further European Central Bank (ECB) rate hikes continue to grow.

According to analysts at Brown Brothers Harriman (BBH), the ECB's more hawkish stance is driven by persistent inflation pressures in the eurozone, which reinforces the single currency's strength.

The market's conviction in additional ECB rate hikes has created a policy divergence between the ECB and the Federal Reserve, with the latter widely expected to pause its tightening cycle as US inflation cools.

This divergence is providing a tailwind for the euro, which remains data-dependent but has shown resilience due to strong economic fundamentals, including a rebound in the services sector and a tight labor market.