FX.co ★ Euro Slips Toward Two-Week Low Amid Rate-Hike Bets

The euro traded around $1.16, close to its weakest level in nearly two weeks, as rising oil prices and renewed inflation concerns reinforced expectations of higher interest rates in both the euro area and the US. Oil prices climbed after the US reported striking an Iranian island in the Strait of Hormuz and Tehran claimed it had retaliated by targeting US assets in the region, escalating geopolitical tensions and inflationary risks.

Money markets now price the ECB’s deposit rate at about 2.70% by December, suggesting roughly an 80% chance of a second rate increase following an anticipated move in September, from the current 2.25%. Investors also expect euro-area rates to edge toward 3% by late 2027.

At the same time, Fed Chair Kevin Warsh adopted a hawkish stance on Friday, cautioning that inflation has not moderated significantly and that the Fed still has “work to do” in the absence of clearer evidence of easing price pressures. Market pricing currently implies around a 60% probability of a Fed rate hike in September.