Euro rebounds 0.15% as ECB hike bets lift single currency
The euro rose 0.15% to $1.1478 in European trading on Tuesday, extending its three-day rebound after ECB sources signaled a second consecutive interest rate hike in October, narrowing the yield gap with the US Federal…
Source: Economies.com · September 22, 2026 at 8:02 AM · AI-assisted report
Single-sourceKUALA LUMPUR, 22 SEPTEMBER 2026 —
The euro rose 0.15% to $1.1478 in European trading on Tuesday, extending its three-day rebound after ECB sources signaled a second consecutive interest rate hike in October, narrowing the yield gap with the US Federal Reserve.
Market Impact
The European Central Bank’s potential tightening comes as inflationary pressures intensify, driven by higher oil and gas prices amid escalating geopolitical tensions in the Middle East. Money markets now assign a 50% probability to a 25-basis-point rate increase at the October meeting, according to ECB sources, who indicated further monetary policy adjustments could follow.
The US dollar’s retreat—down 0.1% to a seven-week low in the US Dollar Index—reflects profit-taking and investor caution ahead of further Fed policy signals. The currency had rallied sharply after last week’s 25-basis-point hike to 4%, widening the Europe-US rate differential to 135 basis points—a factor that had previously supported the dollar’s strength.
The yen weakened further, nearing a two-week low against the dollar as Japan’s ultra-loose monetary stance deepens the yield gap with the US. Meanwhile, risk assets rallied: the Nasdaq hit a record close on Monday, led by AI stocks, while crude oil dipped to an 11-day low on hopes of Middle East diplomatic progress.
For Malaysian markets, the euro’s recovery could ease pressure on exporters’ dollar-denominated debt costs, though Bank Negara Malaysia has signaled no immediate policy response is needed. The ringgit’s sensitivity to global risk trends means further euro strength—or sustained dollar weakness—could provide some relief to corporations with offshore borrowings.
The ECB’s tightening path remains uncertain, with inflation still elevated but growth slowing. If the central bank delivers another hike, the euro could climb further, narrowing the yield gap with the US. However, should the Fed signal a pause, the dollar may regain strength, complicating the ECB’s balancing act between inflation control and economic stability.
Analysts note that the euro’s near-term trajectory will depend on whether ECB officials confirm hawkish intentions or signal caution. The single currency’s performance will also hinge on whether Middle East tensions ease, reducing energy price volatility—a key driver of inflation in Europe. Meanwhile, the Fed’s next policy moves will remain critical, as any shift in its rate outlook could reverse the dollar’s recent weakness.