Euro Trades on Softer Footing Amidst ECB Tightening and French Risks

The Euro (EUR) is trading on softer footing against the US Dollar, with EUR/USD near the bottom of its 1.1400-1.1800 range.

This is due to market expectations for an extended European Central Bank (ECB) tightening cycle, which is offset by hawkish repricing of Federal Reserve rate hike expectations.

According to MUFG's Lee Hardman, the euro-zone rate market expects the ECB to deliver three to four more hikes in the year, with over a 50:50 probability of another back-to-back hike in October priced in.

ECB Chief Economist Lane believes that 'we are now witnessing a second wave of price rises, not only in oil but also in gas', which should lead to higher and more persistent inflation before a decline toward the target from mid-2027 onwards.