Euro Surges to 1.17 as Dollar Weakness and ECB Hike Expectations Align

The Euro has seen significant gains against the US Dollar, reaching levels as high as 1.17. According to Chang Wei Liang at DBS Group Research, this is largely due to the weakness in the Dollar. The European Central Bank (ECB) is expected to hike interest rates in September, with a 26 basis point increase priced and an implied probability of over 90%. This expectation has been reinforced by the recent release of Eurozone inflation data for July.

The July CPI figures matched consensus expectations, showing both headline and core inflation at 2.9% year-over-year (y/y) and 2.5% y/y respectively. The ECB's rate hike is seen as a key factor in supporting the Euro, with markets pricing in a significant increase. On the other hand, the Federal Reserve's next rate move is less clear, given recent economic data softness and upcoming mid-term elections in November.