Euro strengthens above 1.1550 as Fed rate hike bets fade
- EUR/USD edges higher to near 1.1575 in Monday’s early Asian session.
- The chance of a September Fed rate hike dropped to 33.1%.
- The US and Iran continue their conflict and dispute over the Strait of Hormuz.
The EUR/USD pair gathers strength to around 1.1575 during the early Asian trading hours on Monday. The US Dollar (USD) edges lower against the Euro (EUR) amid weaker-than-expected US economic data and shifting central bank expectations. Traders will take more cues from the speech of the European Central Bank (ECB) President Christine Lagarde on Wednesday.
Retail Sales in the United States (US) fell by 0.6% MoM in July, compared to a rise of 0.2% in June, the US Census Bureau showed on Friday. This figure came in below the market consensus of a 0.1% growth. On an annual basis, Retail Sales rose 5.0% in July versus 6.8% (revised from 6.7%).
Traders reduce their bets on the US Federal Reserve (Fed) rate hikes following a slew of softer US data, including Consumer Price Index (CPI), Producer Price Index (PPI) and Retail Sales. This, in turn, weighs on the Greenback and acts as a tailwind for the major pair.
Markets are now pricing a 33.1% chance of a rate hike next month, down from 44% last week, according to the CME FedWatch tool. However, market participants remain convinced the US central bank will need to raise rates by the end of 2026 to bring down inflation that has been running above the 2% target for more than five years.
Ongoing Middle East tensions, particularly concerning energy supply routes, could boost a safe-haven currency such as the USD against the EUR. Iran’s Deputy Foreign Minister Kazem Gharibabadi called on the US to “accept the reality of defeat and stop indulging in delusions” after US President Donald Trump suggested that he would soon declare the Strait of Hormuz a “territory of the United States.”
On Friday, Iran’s Foreign Minister Abbas Araghchi said that there were “no negotiations currently taking place between Tehran and Washington.”
Eurozone data steady as GDP meets forecasts and trade swings back to surplus
Strategists at Scotiabank highlight that the second Eurozone Q2 GDP release was "in line with expectations, printing 0.4% Q/Q to deliver a 1.0% Y/Y pace of growth." They add that the external sector has also turned more supportive, with the region’s trade position improving as "the trade balance returned to a surplus in June, ending a short-lived deficit that emerged from March to May."
Technical Analysis: EUR/USD maintains a constructive outlook above the 100-day SMA
In the daily chart, EUR/USD holds above the 100-day simple moving average (SMA) and the Bollinger Bands’ middle line, keeping the near-term bias constructive while it grinds higher within the upper half of the recent range. The Relative Strength Index (14) at 63 suggests firm upward momentum, though the spot remains capped by the upper Bollinger band resistance.
On the topside, immediate resistance is defined by the Bollinger Bands’ upper boundary at 1.1635, where buyers may hesitate to extend the advance. On the downside, initial support is located at the 100-day SMA at 1.1570, followed by the Bollinger middle band near 1.1490 and the lower band around 1.1345, levels that should cushion any corrective pullbacks while the broader bullish structure persists.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.