The Euro (EUR) advanced 0.17% to trade around 1.1550 against the US Dollar (USD) during Friday's European session, buoyed by firm expectations that the European Central Bank (ECB) will raise interest rates at its September policy meeting [1]. According to a Reuters poll, 57 out of 69 economists anticipate the ECB will hike its deposit rate by 25 basis points to 2.50% in September, reflecting strong market confidence in further monetary tightening to address persistent inflationary pressures [1].
Analysts at HSBC highlighted a growing divergence in global monetary policy, noting that while the ECB appears poised for another rate increase, other major central banks face more complex decisions. The ECB's readiness to tighten contrasts with a more cautious stance elsewhere, as policymakers outside the Eurozone balance inflation risks against the need to keep policy on hold [1].
Meanwhile, expectations for a Federal Reserve (Fed) rate hike in September have diminished, contributing to USD weakness. Deutsche Bank analysts noted that softer US inflation data led to a dovish shift in Fed expectations, with the probability of a September hike falling to 35% by the close, down from over 50% prior to the latest CPI release. The downside surprise in producer price index (PPI) data further reduced the likelihood of imminent Fed tightening [1].
From a technical perspective, EUR/USD is trading near 1.1550, holding above a former trendline break at 1.1510, but capped by the 100-day simple moving average (SMA) at 1.1567. The Relative Strength Index (RSI) at around 60 signals bullish momentum, though a decisive close above the 100-day SMA is needed to confirm a more sustained recovery, with 1.1600 as the next major resistance level [1].
CONCLUSION
The Euro's gains reflect market confidence in a September ECB rate hike, contrasting with reduced expectations for further Fed tightening. This divergence in central bank outlooks has supported EUR/USD, though technical resistance remains. Investors are watching for confirmation of ECB action and further US inflation data to guide the next move.