Commerzbank: If the ECB signals further rate hikes, the euro is expected to benefit, and the market has already priced in two rate hikes by the end of the year.

(1) Commerzbank strategists pointed out that against the backdrop of Middle East tensions and rising energy prices, if the European Central Bank strongly hints at willingness to raise rates further, the euro will be supported; it is expected that the central bank will keep rates unchanged this week, but may raise rates again in September. (2) If the US-Iran conflict escalates, how the European Central Bank signals its readiness to continue raising rates after September will be a key factor limiting the downside of the EUR/USD pair; Mitsubishi UFJ strategists also stated that the possibility of a rate hike this week is extremely low, with hawkish officials also inclined to hold steady. (3) The continued rebound in energy prices supports expectations for a 25-basis-point rate hike in September, with the market almost fully pricing in two rate hikes before the end of the year, pushing short-term rates back to their annual highs; at the same time, softer US inflation data has weakened the impact of rising energy on Federal Reserve rate hike expectations, causing the interest rate differential to shift in favor of the euro.