Euro Faces Uphill Battle Against US Dollar Amid High Expectations

Commerzbank's Michael Pfister notes that markets have already priced in an upcoming ECB rate hike and see around 85 basis points of additional tightening by mid-2027, heavily driven by oil dynamics.

This leaves little room for the ECB to meet expectations, making a clearly hawkish surprise necessary for Euro strength, while any disappointment could weigh on EUR/USD.

The recent rise in oil prices has led to expectations of more than two further interest rate rises by the middle of next year, with a total increase of 85 basis points priced in, including an additional 25 basis points being priced in over the last week alone.