The euro hovered near $1.16, its strongest level since November 2021, as investors reacted to the increasingly divergent policy paths of the European Central Bank and the US Federal Reserve.
The shift comes against a backdrop of rising oil prices, fueled by fears of supply disruptions stemming from escalating tensions between Israel and Iran, as well as ongoing trade tariff disputes.
In the Eurozone, markets now price the ECB’s deposit rate at 1.79% by year-end, with the probability of a September rate cut slipping to 50%, down from 60%.
ECB policymaker Joachim Nagel stressed the importance of maintaining policy flexibility, citing the complex global backdrop.
Meanwhile, the Fed is widely expected to keep rates unchanged on Wednesday.
Investor attention will focus on updated economic projections and the dot plot, with markets still anticipating a possible rate cut as early as September.