The euro is betting on divergence

• ECB rates are in the right place while German inflation is accelerating. • The Bank of Japan may raise rates in December & capital flight will pressure the pound.
FxPro | 283 days ago

 

Attempts by the US dollar to counterattack are being thwarted. The euro is rising due to accelerating German inflation, the pound is rising following the debt market's approval of Rachel Reeves' draft budget, and the yen is growing in anticipation of a rate hike by the Bank of Japan in December. Donald Trump's comments on the selection of a new Fed chair, as well as expectations for speeches by Jerome Powell and Michelle Bowman, are weighing on the dollar.

Christine Lagarde said that the ECB's interest rates are at the right level. With inflation under control, the European Central Bank is well-positioned. Indeed, there are risks of both acceleration and deceleration in consumer prices. The former includes Germany's fiscal stimulus and rising expectations of higher industrial and service prices. The latter include the strong euro, lower energy prices and imports from China.

The acceleration of inflation in Germany to 2.6% in November is reinforcing the ECB's caution. The central bank has most likely ended its cycle of rate cuts. There are scenarios in which the deposit rate will rise. The federal funds rate, on the other hand, risks falling significantly. The divergence in monetary policy creates an excellent opportunity for the EURUSD to resume its upward trend. However, to start with, the bulls need to hold on to 1.16.

Meanwhile, the yen strengthened thanks to Kazuo Ueda's hawkish speech. He stated that the Bank of Japan would weigh all the pros and cons of raising the overnight rate. At the same time, any increase should be seen as an adjustment to the ultra-soft monetary policy. On these words, the probability of a rate hike in December rose to 76%, allowing bears to develop a decline in USDJPY.

The pound is trying to stabilise after the presentation of the draft budget. According to Eurizon SLJ Capital, the pound will fall against the euro, yen, and Swiss franc amid capital flight by the wealthy following tax increases.

The FxPro Analyst Team 

FxPro
Type: NDD
Regulation: FCA (UK), SCB (The Bahamas)
read more
US Yields Rise Despite Buybacks; Eyes on ECB Hike

US Yields Rise Despite Buybacks; Eyes on ECB Hike

Tensions escalated as the U.S. and Iran engaged in the largest maritime exchange in six months near the Strait of Hormuz, pushing Brent crude above $100/bbl. U.S. equities remained under pressure, Treasury yields rose even after the Treasury tripled long‑term bond buybacks, and a softer dollar supported gold.
ATFX | 8h 26min ago
US Treasury Triples Long-Term Bond Buyback Size

US Treasury Triples Long-Term Bond Buyback Size

🚨 Iran attacks 10 vessels near Hormuz after US sinks 5 Iranian tankers — biggest shipping clash of the conflict. Brent tops $100 to $101.21, WTI at $96.05. Goldman warns $120 oil possible. 10Y yields hit 4.85%, highest since Nov 2023. Gold rises 1.5% to $4,418. ECB hikes 25bps today. PPI due.
CPT Markets | 10h 13min ago
The euro is banking on the ECB

The euro is banking on the ECB

The euro is rising on expectations of an ECB tightening cycle, but Lagarde’s cautious stance and a possible decline in US Treasury yields could trigger a sell-off in EURUSD.
FxPro | 1 day ago
Yen Hits 6-Month High, Volatility Returns After North American Holiday.

Yen Hits 6-Month High, Volatility Returns After North American Holiday.

US markets were closed yesterday for a bank holiday, limiting overall market activity. The US dollar weakened as the Japanese yen surged, while crude oil extended gains amid escalating tensions in the Middle East. Iran warned it could target energy infrastructure across the region if the US launches further attacks on Iranian assets.
ATFX | 2 days ago