EUR/USD rises on consolidating US dollar

Near 1.0810, the EUR/USD pair soared. After Jerome Powell’s speech, the US dollar and US yields consolidated, with the USD trading weakly against most competitors as a result of a minor consolidation and a risk-positive market environment.

As markets digested Powell’s speech, the hawkish tone of the European Central Bank gained momentum. Investors increased their bets on a November rate increase, pushing up US rates by over 50%. The 2-year bond rate is currently at 5.05%, while the 5-year and 10-year bond rates are at 4.41% and 4.22%, respectively. On Monday, however, US bond yields retreated.

The US dollar measured by the DXY index slightly retreated but still traded at its highest level since early June, above the 104.00 zone. Robert Holzmann from the ECB confirmed the ECB’s data-dependent approach. Investors will watch crucial inflation figures from Germany and the EU from August to place their bets on the ECB’s next decisions.

According to the World Interest Rates Probabilities tool, markets are discounting a 45% chance of a 25bps increase at the forthcoming meeting on September 14, 2023. With a target rate of 5%, there is a 66% chance of a 25bps increase in October and a 75% chance of one in December.