Euro Gains Support on Hawkish ECB Expectations and Weaker Dollar

The euro traded at 1.16661 against the dollar during Tuesday's Asian session, slightly recovering after a modest decline the previous day. Rising oil prices, higher bond yields, and escalating Middle East tensions have fueled eurozone inflation concerns, reinforcing market expectations of further policy tightening by the European Central Bank, thereby underpinning the euro.

**Hawkish Expectations Intensify, September Rate Hike in Focus**

The market broadly expects the ECB to deliver another 25-basis-point rate hike in September following its June tightening. According to a Reuters poll, 57 of 69 economists expect the ECB to raise its deposit rate by 25 basis points to 2.50% in September. HSBC analysts noted that the global policy outlook is becoming increasingly divergent, and while the bank expects the ECB to hike again in September, it will be a tougher balancing act for other major central banks.

**Weaker Dollar Provides Additional Support**

Traders are scaling back pricing for a September Federal Reserve rate hike, with soft inflation data driving a dovish repricing that weighs on the dollar. Deutsche Bank analysts said that by the close, the probability of a September Fed hike had fallen to 35% from over 50% before Wednesday's CPI release, with below-consensus PPI data further triggering an immediate market reaction. The relatively weaker dollar provides additional support for the euro against the dollar.

**Technical Outlook Remains Constructive**

On the technical front, the euro-dollar pair has held above a descending trendline near 1.1540, with the 14-day Relative Strength Index around 60, suggesting solid bullish momentum. However, the pair remains capped by resistance near the 100-day simple moving average, and near-term attention is on a breakout above the upper resistance zone. Overall, hawkish ECB expectations and dollar weakness jointly underpin the euro in the short term, but further upside will depend on upcoming inflation data and central bank officials' commentary.