The Euro slipped against the British Pound, trading around 0.8620 and hovering near the lower end of its multi-month range, as easing oil prices tempered expectations for further European Central Bank (ECB) rate hikes. This shift comes after oil prices retreated to pre-US-Iran war levels, reducing inflation concerns and prompting traders to reassess the ECB's monetary policy outlook. The ECB recently raised rates by 25 basis points to 2.25% and reiterated that future policy moves will remain data-dependent. ECB Executive Board member Isabel Schnabel stated, 'From today's view, more hiking is needed to get to 2%. ECB rates are not restrictive yet,' highlighting that war, inflation, and growth will determine the timing and size of any future hikes. However, traders now anticipate only one additional ECB rate increase later this year, reflecting a less hawkish stance [1].
Meanwhile, the Bank of England (BoE) kept interest rates unchanged at 3.75% at its latest meeting, and expectations for further BoE rate hikes have also diminished. If UK inflation returns to target, the BoE could shift to an easing bias amid sluggish economic growth, potentially weighing on the Pound. Political uncertainty following UK Prime Minister Keir Starmer's resignation could trigger volatility in Sterling [1].
In Central and Eastern Europe (CEE), ING’s Frantisek Taborsky notes that a stronger US Dollar and lingering Fed hike risks are pressuring CEE currencies, raising inflation concerns for open economies as higher oil and food prices loom. Market pricing has reduced rate-hike expectations in Poland and the Czech Republic, while increasing rate-cut bets in Hungary. Specifically, the Czech Republic market is keeping one hike, Poland about half a hike, and Hungary about 150 basis points of easing. However, the pressure on FX may bring rate hikes back into play, although ING's baseline is no change in the Czech Republic and Poland this year. The increasing probability of a Fed hike also raises the likelihood of rate hikes from the Czech National Bank (CNB) and National Bank of Poland (NBP), and fewer rate cuts from the National Bank of Hungary (NBH) [2].
The US Dollar was the strongest against the New Zealand Dollar today, with a 0.14% gain, and showed modest gains against other major currencies, including the Euro (0.02%) and the British Pound (0.05%) [1].
CONCLUSION
Easing oil prices and a stronger US Dollar have led to reduced expectations for aggressive rate hikes in both Western and Central Europe, with markets now pricing in fewer hikes and more cuts, especially in Hungary. While inflation concerns persist, especially in CEE economies, the outlook remains data-dependent, and future central bank actions may shift if FX pressures intensify or inflation trends change. Overall, the market sentiment is cautious, with medium impact expected as traders adjust to evolving monetary policy signals.