ECB’s Wunsch says the case for another rate hike is not as strong now, dragging the euro down and boosting European bonds as traders dial back policy tightening expectations.
Wunsch’s dovish tilt reduces the probability of additional ECB rate hikes, eroding the rate advantage that has supported the euro. EUR/USD slipped as traders priced in a shallower tightening path, with the euro falling against the dollar as yield differentials narrowed.
The euro dropped because Wunsch’s remarks lower expectations for ECB rate hikes, reducing the currency’s yield appeal compared to the dollar.
Support sits near 1.0600, with a break below opening the door to 1.0525. Resistance stands at 1.0700, the pre-comment high.
Lower ECB rate hike expectations directly boost German government bonds, pushing yields down and prices up. Wunsch’s signal removes a key hawkish tail risk for Bunds, as markets now price a nearer end to policy tightening.
Bund yields fell as markets priced out further rate hikes, lifting bond prices. The 10-year yield declined as traders expect a less aggressive ECB.
The rally depends on upcoming inflation data. If price pressures persist, the ECB may push back, limiting further gains in Bunds.
ECB Governing Council member Wunsch said the case for another rate hike has weakened, citing softer inflation and growth concerns. His dovish signal led markets to trim tightening bets, pushing the euro lower and lifting European government bonds. The shift marks a potential peak in ECB hawkishness, with focus turning to the timing of future cuts.
He said the case for another rate hike is not as strong now, signaling a less hawkish outlook amid cooling inflation and economic weakness.
The euro weakened as traders reduced bets on further tightening, while European bond yields fell, pushing bond prices higher.
It suggests the ECB may be close to ending its tightening cycle, with markets now expecting a shallower path—and potentially rate cuts—over the coming year.