Chang Wei Liang at DBS Group Research highlights that EUR/USD has rallied toward 1.17, with the Euro the main beneficiary of Dollar softness. July Eurozone CPI matched expectations for both headline and core, reinforcing market conviction in a European Central Bank rate hike in September, with around 26 basis points priced and a very high implied probability.

Eurozone inflation supports ecb pricing

“EUR/USD rallied towards 1.17, with EUR being the prime beneficiary of USD weakness.”

“Eurozone’s July CPI came in line with expectations yesterday, with both headline and core inflation matched consensus of 2.9% y/y and 2.5% y/y respectively.”

“This has entrenched expectations of an ECB rate hike for Sep, with markets pricing in a 26bps hike with over 90% probability.”

“On the other hand, the Fed’s next rate move is less clear given recent economic data softness, and upcoming mid-term elections in November.”