Euro Fades Near One-Week Low as US Rate Hike Expectations Rise

The euro declined against the US dollar in European trading on Friday, hovering near a one-week low after strong US economic data increased expectations for an interest rate hike this year.

Markets are awaiting Federal Reserve Chair Kevin Warsh's speech at the Jackson Hole symposium later today to reassess those expectations. The European Central Bank is preparing to raise interest rates in September amid growing concerns that higher energy prices will sustain inflationary pressures, according to Reuters.

The report strengthened market expectations for a second ECB rate hike this year, with investors awaiting further crucial economic data. Following the report, money markets raised the probability of a 25-basis-point ECB interest rate hike in September from 50% to 75%, and investors are awaiting further eurozone economic data on inflation, unemployment, and wages to reassess those expectations.

The US Dollar Index rose 0.1% on Friday, trading near a one-week high and reflecting broader gains in the US currency against a basket of major and minor currencies. Several Federal Reserve officials expressed continued concerns about US inflation and indicated that they remain open to raising interest rates, with markets pricing a 66% probability that the Federal Reserve will leave interest rates unchanged at its September meeting.