Commerzbank’s FX Research team, including Charlie Lay and colleagues, notes that the Dollar Index fell and EUR/USD climbed after the Federal Reserve left rates unchanged but revealed a significant internal split. The softer Dollar tone, combined with market pricing for a possible September hike and higher long-end US yields, helped EUR/USD extend gains, reflecting shifting expectations for US monetary policy.

Euro benefits from softer Dollar

"The main theme overnight was the Fed's surprisingly divided decision to leave interest rates unchanged. The FOMC kept the target range unchanged at 3.50-3.75% for the seventh consecutive meeting, but three officials dissented in favour of a 25bp hike, highlighting a growing concern over persistent inflation."

"Markets interpreted the decision as less hawkish than the dissents suggested, pushing the US 2Y Treasury yield and the USD lower. However, longer-dated yields rose sharply as investors judged the Fed's response insufficient to contain persistent inflation."

"The Fed funds futures are pricing in 63% probability of a 25bp hike in September. They have pared back the total hike for this year to 33bp compared to 42bp on Tuesday."

"For today, we get personal income, personal spending, PCE inflation, initial jobless claims, and the advance estimate for Q2 GDP. The market consensus is at 2% qoq annualized vs 2.1% in Q1. The Atlanta Fed GDPNow forecast is at 1.6% as of 27 July 2026."

"The Dollar Index fell 0.5% to 100.89 and EUR/USD gained 80 pips to 1.1470."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)