The euro held below $1.14, trading near its weakest level in nearly two months, as the dollar firmed on growing expectations that the Federal Reserve may deliver additional interest rate hikes this year. Those expectations were reinforced by stronger-than-forecast US PMI data and a series of hawkish comments from Fed officials. Rising oil prices, driven by ongoing uncertainty around US-Iran negotiations, further pressured risk-sensitive assets.
In Europe, however, the tone was more upbeat. German business sentiment in September improved more than anticipated, climbing to its highest level in over three years, following Wednesday’s stronger-than-expected PMI figures. Eurozone private-sector activity also grew at its fastest pace in nearly three and a half years, bolstering expectations of further monetary tightening by the European Central Bank. Money markets are now pricing in at least one 25-basis-point ECB rate increase by the end of the year, with roughly a 40% chance of a second hike.
