test 1 - EUR/USD (No title)

Institutional banks broadly see scope for at least one more ECB rate hike in September, with higher energy prices and hawkish ECB communication supporting this view. However, there is disagreement over whether EUR/USD will extend gains or reverse, as some expect lower US yields to underpin the pair while others see the Fed narrative driving the euro back below 1.14.

OCBC: September hike still base case, but “one-and-done” risk tempers conviction

OCBC highlights that the ECB’s June minutes “reinforced the Governing Council’s view that the June rate hike was fully justified,” while keeping future policy flexible. Against this backdrop, OCBC’s base case is for “one final ECB rate hike in September,” yet President Lagarde’s comments in Sintra have raised the possibility that June was a “one-and-done” move. For EUR/USD, this implies support from expectations of another hike, but with a softer conviction that could limit the upside if markets lean toward the one-and-done scenario.

"OCBC: The ECB’s June meeting minutes reinforced the Governing Council’s view that the June rate hike was fully justified based on the information available at the time, while maintaining flexibility on future policy moves."

MUFG/BTMU: Further ECB tightening and lower US yields seen as EUR/USD tailwinds

MUFG/BTMU expects the ECB to act again, consistent with its forecast of another 25bp hike in September, reinforcing the view that euro-area rates may move higher. At the same time, the bank “continue[s] to see risks of US yields turning lower,” which it believes “should reinforce renewed upward momentum for EUR/USD.” Together, these factors point to a constructive stance on the pair, with relative rate dynamics skewed in favour of the euro in MUFG/BTMU’s assessment.

"OCBC: Our base case remains for one final ECB rate hike in September, although ECB President Lagarde’s comments in Sintra have increased the possibility that June marked a "one-and-done" move."

ING: Fed narrative and higher energy prices point to euro strength capped below 1.14

ING acknowledges that higher energy prices and a hawkish tone from the ECB — which it “assume[s] will be pitched as hawkish and, combined with higher energy prices, keep expectations alive for a follow-up hike at the September meeting” — can support euro-positive rate expectations. However, ING argues that “the Fed story will be a more dominant theme” and can “easily see EUR/USD handing back early gains today and sending the euro back below the 1.14 level.” ING’s view thus contrasts with more upbeat EUR/USD assessments, emphasizing that US policy dynamics could outweigh ECB-driven support for the currency pair.

"MUFG/BTMU: In that context we see continued risks of the ECB acting again consistent with our current forecast of another 25bp hike in September."

The takeaway

Banks broadly agree that ECB policy remains biased toward at least one more rate hike in September, with higher energy prices and hawkish communication sustaining that expectation. MUFG/BTMU sees this, alongside potential declines in US yields, as a foundation for renewed EUR/USD upside, while ING warns that a dominant Fed narrative could push the pair back below 1.14. OCBC sits between these views, maintaining a September hike as its base case but acknowledging that Lagarde’s comments have increased the risk that June was the last move, leaving the euro’s outlook dependent on how firmly markets price further ECB action versus US policy developments.