The euro weakened slightly below $1.16 as investors assessed August inflation in the Eurozone and its implications for the European Central Bank’s rate outlook. Annual inflation rose to 3.3%, the highest since September 2023 and well above the ECB’s 2% target, driven largely by surging energy prices amid continued fighting in the Middle East. The figures strengthened expectations for an ECB rate hike as soon as this month, even as services and core inflation eased. Markets are pricing the deposit rate at around 2.70% by December, implying roughly an 80% probability of a second hike after an expected September move. ECB policymaker Olli Rehn warned that a prolonged conflict could keep inflation elevated, while Martin Kocher said confirmed inflation risks in the ECB’s next forecasts could require a swift rate hike. The dollar also remained supported after Fed Chair Kevin Warsh adopted a hawkish tone, with markets pricing a 66% probability of a September Fed hike.