The Euro (EUR) remained stable against the US Dollar (USD), with the EUR/USD pair trading virtually flat near 1.1623 during American trading hours on Tuesday [1]. The US Dollar Index (DXY) hovered around 98.82 after briefly reclaiming 99, marking its lowest level in more than two weeks, as the Greenback struggled to maintain earlier gains [1]. Despite hawkish expectations for the Federal Reserve (Fed), the USD failed to attract defensive demand, even amid escalating tensions in the Middle East and elevated oil prices, which have contributed to inflation concerns and strengthened the case for tighter monetary policy [1].
Market participants are closely watching upcoming US economic data, with the Producer Price Index (PPI) due on Thursday and the Consumer Price Index (CPI) on Friday, both seen as critical tests for the Fed ahead of its policy decision [1]. According to the CME FedWatch Tool, there is around a 60% probability that the Fed will raise interest rates by 25 basis points at its September 15-16 meeting [1].
On the European side, attention is focused on the European Central Bank’s (ECB) interest-rate decision scheduled for Thursday. Markets have fully priced in a 25 basis point increase in the ECB’s deposit rate to 2.50%, which would mark the second rate hike this year following the June increase [1]. Eurozone inflation accelerated to 3.3% in August from 2.9% in July, primarily due to higher energy prices [1]. As the rate hike is already anticipated, the Euro’s reaction may hinge more on President Christine Lagarde’s comments and the ECB’s updated economic projections, with traders seeking signals on whether further hikes are likely after September or if a pause is planned [1].
Analysts at ING noted that recent data revisions have reinforced the Eurozone’s growth narrative, with second-quarter output revised up from 0.4% to 0.6% quarter-on-quarter, driven by robust multinational performance in Ireland [1]. ING also highlighted Europe’s resilience amid geopolitical tensions and higher commodity prices, which has helped keep the Euro relatively expensive [1]. However, ING maintains a cautious outlook on EUR/USD, citing a short-term downside preference based on expectations of a September Fed hike and the impact of rising energy prices, suggesting the Euro’s current strength may be difficult to sustain in the near term [1].
CONCLUSION
The Euro’s stability reflects fully priced-in ECB tightening and cautious optimism about Eurozone growth, while the US Dollar remains under pressure despite hawkish Fed expectations. Market participants are awaiting key inflation data and central bank decisions, which are likely to set the tone for EUR/USD in the near term.