Euro under negative pressure ahead of Warsh's comments at Jackson Hole

The euro fell in European markets on Friday against a basket of global currencies, trading near its weekly low versus the US dollar after strong US economic data boosted expectations of a US interest‑rate hike this year. To reprice those expectations, markets are awaiting later today the speech of Federal Reserve Chairman Kavin Warsh at the Jackson Hole forum.

According to Reuters, the European Central Bank is preparing to raise interest rates next September, with growing concerns about persistent inflationary pressures from rising energy prices, which has strengthened market expectations of a second European rate hike this year, pending further decisive economic data.

The CME Group’s Fed Watch tool shows the probability of the Federal Reserve keeping rates unchanged at its September meeting stable at 66%, while the probability of a 25‑basis‑point rate increase is priced at 34%.

Three sources told Reuters that ECB policymakers are ready to raise rates at their September meeting to contain the side effects of the Iranian war, but they do not want to signal further monetary tightening thereafter.

The sources, speaking on condition of anonymity due to confidentiality, said that with inflation near 3%, the ongoing Iranian conflict, and the euro‑area economy showing signs of resilience, ECB governors believe the time is right to raise the main policy rate again, from 2.25% to 2.50%.

Forecasts on euro performance we expect here at FX News Today: if Warsh’s comments turn out more aggressive than market expectations, the odds of a US rate hike this year will rise, leading to further appreciation of the US dollar against a basket of global currencies, especially the euro.