The euro hovered around $1.145, ending the month broadly flat against the US dollar as stronger-than-expected eurozone data counterbalanced rising geopolitical risks. Euro area GDP expanded by 0.4% in the second quarter, surpassing expectations of 0.2% and posting its fastest pace of growth since early 2025. At the same time, annual inflation quickened to 2.9% in July, with both core and services inflation firming. These figures bolstered expectations of further ECB policy tightening, with markets fully pricing in an increase in the deposit rate to 2.75% by early 2027, implying two additional hikes, the first potentially as soon as September.
In the US, the Federal Reserve left interest rates on hold, though three FOMC members dissented in favor of an increase. Futures markets now put the probability of a September hike at around 65%. Meanwhile, oil prices surged more than 20% over the month following renewed US–Iran strikes, stoking concerns about energy supply disruptions and renewed inflationary pressures.
