EUR: ECB rate hike expectations support range-bound movement vs USD - Danske Bank

Danske Bank research team said that as the market reassesses the European Central Bank's policy outlook, the EUR/USD pair is stabilizing around 1.1650. The bank believes that ECB rate hike expectations are providing support for the euro, keeping it range-bound against the dollar.

**ECB policy expectations provide support**

Despite the ECB announcing a 25 basis point rate hike after ending a streak of seven meetings with no change, the euro has not gained significant upward momentum. Geopolitical risks, particularly tensions in the Middle East, continue to provide safe-haven demand for the dollar, limiting the euro's upside. Market reports indicate that EUR/USD had previously been hovering near two-month lows.

**US-EU rate differential dynamics impact exchange rate**

Danske Bank analysis points out that both US and eurozone interest rates have recently moved lower. For example, the 10-year Treasury yield has pulled back from earlier highs, which has influenced the dollar's trajectory to some extent. However, diverging inflation trends within the eurozone may lead the ECB to adopt a more cautious approach to the pace of future rate hikes—essentially a "slow and steady" strategy—which limits market expectations for sustained one-way euro appreciation.

**Range-bound trading likely to continue in the near term**

Overall, the ECB's hawkish stance and the dollar's safe-haven demand are creating a tug-of-war. Danske Bank's view suggests that in the absence of new decisive catalysts, EUR/USD is unlikely to break out of its current range in the short term. Investors are closely watching upcoming economic data and central bank speeches for clues on the pair's next directional move.