EUR/USD Holds Gains at 1.1650 as ECB Signals No Further Easing, Market Sentiment Improves

EUR/USD Creeps Higher on ECB’s Conservative Tone and US Dollar Weakness

The EUR/USD currency pair has posted modest gains, currently trading at around 1.1650 during the Monday Asian session. This move comes after losses in the previous session, with the Euro (EUR) supported by expectations that the European Central Bank (ECB) will refrain from easing its policy in September. Markets are closely watching the ECB’s stance as it signals an end to the ongoing cycle of monetary easing, which has provided support to the single currency in recent weeks.

Euro Strengthened by ECB’s Likely Pause on Easing and Improved Sentiment

The Euro’s strength is also underpinned by an overall improvement in market sentiment. Hopes for a potential resolution of the Ukraine-Russia war have fueled optimism, as traders and investors expect that peace talks could lead to a ceasefire in Ukraine. This shift in sentiment has provided support to the Euro, as stability in Europe would likely benefit its economy in the long term.

Additionally, the possibility of a summit between former US President Donald Trump and Russian President Vladimir Putin next week has sparked speculation that a breakthrough in the Ukraine conflict could be on the horizon. The market has taken these developments as a positive sign for the region, contributing to the Euro’s gains against the US Dollar.

Weak US Economic Data Fuels Rate Cut Expectations

On the flip side, the US Dollar (USD) has been under pressure due to softening economic data from the United States. Recent reports, including weaker-than-expected employment and retail sales data, have raised concerns about the health of the US economy. As a result, traders have begun pricing in a higher likelihood of the Federal Reserve cutting interest rates this year.

Market expectations are high that the Fed could implement at least two rate cuts in the second half of 2023. Currently, there is an 89% probability priced in for a rate cut during the Fed’s September meeting. Furthermore, traders are also anticipating a 58 basis point probability of an additional rate cut later in the year, which would likely weaken the US Dollar further.

Outlook for EUR/USD: Focus on ECB and US Fed Policy

As the markets await key economic data and central bank decisions, the outlook for EUR/USD will largely depend on the ECB’s policy stance and the developments in the US economic landscape. If the ECB maintains its conservative approach and refrains from easing, the Euro could continue to gain against the US Dollar. On the other hand, if the US economy continues to show signs of weakness and the Fed delivers on its expected rate cuts, the USD could remain under pressure.

Conclusion

For now, the EUR/USD currency pair remains supported by Eurozone optimism, a dovish Fed outlook, and hopes for geopolitical stability in Europe. As the markets turn their attention to upcoming central bank meetings and economic data releases, EUR/USD could see further upward momentum if these trends continue.