EUR/USD has edged higher in early September and has reclaimed its 200-day moving average at around 1.1635 ahead of the European Central Bank’s policy update. The move has been underpinned by European yields reacting more forcefully to summer energy-price gains and by market pricing for a hawkish ECB stance. Markets are close to fully discounting another rate hike by December, which sets a higher hurdle for any fresh hawkish surprise.
Focus On ECB Forward Guidance
The focus is on whether the ECB indicates further tightening beyond the next step, as that forward guidance is expected to shape the euro’s reaction. A second increase in the current cycle would take the policy rate towards the top of the ECB’s estimated neutral range of 1.75%–2.50%, against a backdrop of concern about second-round inflation effects.
Yield Divergence And EUR/USD Support
In rates, the latest divergence has persisted: the 2-year US Treasury yield rose by about 4 bps, while European yields have remained more energy-sensitive, helping keep the pair on a gradual upward trend over recent months.
