EUR/USD Flows - ECB predetermined, Fed open minded? (Fed Williams, ECB Minutes)

As well as neutral positioning, uncertainty and a lot of recent options, one of the reasons EUR/USD has been so sidelined is the extent to which events tend to scale policy tightening expectations on both sides of the ledger.

The market now has 25bp of hikes fully priced back in to Sep again for the ECB on the back of the recent renewed geopolitical frictions. ECB Minutes unsurprisingly come across as hawkish as was known at the time of the decision and the presser. All the same, the adamant stance is tending to reinforce the market betting on the CB pushing on with validating the prior hawkish pricing (“Headline inflation was set to rise further over the summer and remain well above target into the first half of 2027, despite almost three 25-basis-point interest rate hikes being embedded in the projections”). 

Fed Williams meanwhile today mainly focuses on stablecoin and issues around managing the balance sheet, but does echo one line out of the Fed Minutes about AI investment as a driver of inflation and as a possible source of a higher neutral rate. 

Despite that, wider comments mainly reflect the view that the Minutes overall actually "captured a collective reaction function" rather than firm individual positions, and that the Fed is 'actively debating scenarios around inflation'. That was more the takeaway from the Minutes in contrast to the ECB - the Fed debate on inflation and the broader macro-financial backdrop is currently very open and to be determined by the data and events ahead.