At the start of the week, the EUR/USD is gaining traction after six consecutive days of losses, trading near 1.0900. The German Buba Monthly Report showed risk inflation which fueled a rise in German yields on hawkish bets on the European Central Bank (ECB). Additionally, investors await the Jackson Hole Symposium on Thursday, in were Jerome Powell and Christine Lagarde will probably give clues for further guidance on their respective monetary policies.
The German Buba Monthly Report showed that inflation could persist above the central bank's targets for longer. In that sense, upside inflation risks made investors place hawkish bets on the European Central Bank (ECB), causing the German bonds for 2,5 and 10-year yields to rise to 3.10%, 2.70% and 2.70%, respectively. Additionally, the World Interest Rate Probability (WIRP) indicates that the markets are betting on 55% odds of a 25 basis point (bps) hike in the September 14 meeting, while those odds rise to 75% and 85% for the October and December meetings. In that sense, those hawkish bets make the Euro gain interest against its rivals.
For the US side, the USD measured by the DXY index is trading flat as investors await S&P PMI data on Wednesday and Jerome Powell’s speech at Jackson Hole Symposium, where investors will look for clues regarding forward guidance. As for now, markets are discounting that the Federal Reserve (Fed) won’t hike in September and nearly 40% probability of a 25 basis point (bps) hike in November
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