Euro Struggles as ECB Tightens and Dollar Rises on Higher Yields

The European Central Bank (ECB) has largely won the argument about raising interest rates in September, as investors expect inflation to remain high enough to justify tighter policy. The ECB's decision to keep its current path is supported by European yields staying under pressure due to high inflation and unpredictable energy costs.

On the other hand, US Treasury yields have moved higher after Kevin Warsh defended the Federal Reserve's willingness to keep financial conditions restrictive at Jackson Hole. This shift in attention has benefited the dollar, as higher US yields become dollar-positive once again.

The rebound in oil prices is another problem for the euro, particularly for Europe's inflation and trade balance. Higher energy costs are making investors more cautious about Europe's economic outlook, putting upward pressure on European yields and strengthening the dollar.