The EUR/USD currency pair is trading just below 1.1657. After slumping to a one-week low of 1.1622 in early European trade, EUR/USD has managed to bounce off the bottom, but still remains vulnerable. Euro bounces back to snap two-day losing streak. This boom is powered by a drop in the value of the US Dollar – driven by political pressures over US President Donald Trump and the Federal Reserve.
Market sentiment shifted as the US Dollar faced pressure following Trump’s call for Federal Reserve governor Lisa Cook to resign over mortgage fraud allegations. The US Dollar Index (DXY) fell to 98.12 after reaching a one week high of 98.44 earlier in the session. This drop-off in imports has been instrumental in the Euro’s recent comeback.
Christine Lagarde, President of the European Central Bank (ECB), addressed the World Economic Forum’s business summit in Geneva, where she expressed a cautious outlook on the Eurozone’s economic landscape. Lagarde welcomed the recent EU-US trade agreement as a source of short-term relief. Yet, she warned, many hurdles still exist.
“Significant risks remain, particularly related to sector-specific tariffs and geopolitical uncertainty.” – Christine Lagarde
In the face of these headwinds, the EUR/USD turned a bit more optimistic as buyers stepped in to defend the key psychological support around 1.1600. The market’s overall sentiment appears to lean towards an expectation of a rate cut at the upcoming September meeting, which could further influence the currency pair’s dynamics.
In addition to U.S. data, inflation data from the Eurozone factor significantly in shaping market expectations. Eurozone inflation held firm at 2.0% YoY for July—unchanged—but the core measure jumped, up 2.3% YoY. The monthly core reading fell by 0.2%, with prices effectively unchanged from a month earlier.
Investors are looking for more clear guidance in upcoming Federal Open Market Committee (FOMC) minutes. Should the committee give a dovish impression or hint at the possibility of rate cuts, this may weigh on the US Dollar and provide upside potential for the EUR/USD currency pair.