Market conditions for the euro are characterized by upward momentum, fueled by expectations of monetary easing from both the Federal Reserve and the European Central Bank. The euro has rebounded from a recent low, trading above $1.16. These expectations are driven by weaker-than-expected US economic data and a stable inflation rate within the Eurozone.
- The euro traded above $1.16 in early August, recovering from a seven-week low of $1.139.
- Markets anticipate easing from both the Fed and the ECB, with the Fed expected to act more aggressively.
- A weak US payrolls report intensified expectations of a Fed rate cut as early as September.
- Money markets price in a roughly 60% chance of an ECB rate cut by year-end, rising to 80% by March 2026.
- Eurozone annual inflation held at 2.0% in July, slightly above the 1.9% forecast, marking the second consecutive month at the ECB’s target.
- Policymakers are expected to closely monitor the economic impact of new US tariffs.
The anticipation of interest rate cuts from both the US and Europe is influencing the euro’s value. The expectation that the US will cut rates more aggressively is providing support for the euro. However, the possibility of ECB rate cuts and the monitoring of external economic factors like US tariffs introduce a degree of uncertainty for the currency’s future trajectory.