Euro Strengthens as Fed Rate Hike Expectations Fade
The Euro strengthened against the US dollar and held above the 1.1550 level as markets further scaled back expectations for a Federal Reserve interest rate hike in September. Dollar weakness has been a key driver for EUR/USD following US economic data indicating softening momentum.
Markets now price in a roughly 65% probability that the Fed will keep interest rates unchanged at its September meeting. This shift in expectations was triggered by a cooling US labor market in July, softer consumer inflation, and weaker retail sales, leading to the view that the need for further monetary policy tightening has diminished.
However, the dollar's decline remains capped by rising geopolitical risks. The US-Iran conflict has entered its sixth month, with President Donald Trump asserting that no talks or negotiations with Tehran are currently underway or scheduled. Washington also maintains a naval blockade against Iran.
The protracted conflict could potentially reignite demand for the dollar as a safe-haven asset. Additionally, the risk of rising oil prices due to disruptions in the Strait of Hormuz could stoke inflationary pressures and make the Fed's policy path harder to predict.
From Europe, the Euro has received additional support from expectations that the European Central Bank (ECB) will continue its rate-hiking cycle. Markets estimate a 90%–94% probability of the ECB raising rates by 25 basis points at its September meeting. ECB Chief Economist Philip Lane has also noted that Eurozone inflation, hovering around 3%, remains too high.
Newsmaker Analysis: EUR/USD continues to find support in the diverging policy expectations between the Fed—increasingly expected to hold rates steady—and the ECB, which retains the potential to hike. However, US-Iran tensions remain a risk factor, as they could boost the dollar through safe-haven demand. As long as EUR/USD holds above 1.1550, the possibility of re-testing the 1.1600–1.1615 range remains open. (asd)
Source: Newsmaker.id
