Euro Rises as ECB Hike Bets Keep EUR/USD Above 1.1650

The Euro rose on Thursday as investors anticipated further policy tightening by the European Central Bank (ECB). The ECB deposit rate was seen reaching 3.0% by March 2027 with a nearly 25% probability, and by September with about a 60% chance.

This hawkish tilt from the ECB supported the Euro, despite some market participants expecting a pause in its rally. ECB Executive Board member Isabel Schnabel stated that borrowing costs would need to rise further due to upside risks to inflation from the prolonged conflict in the Middle East and the stronger-than-expected performance of the euro-area economy.

The US core Personal Consumption Expenditures (PCE) Price Index inflation remained at 3.3% year-over-year in July, while headline PCE inflation was unchanged at 3.7%. The Federal Reserve's preferred inflation gauge aligned with expectations, but traders were looking for additional direction on US monetary policy from guidance at the annual Jackson Hole symposium.