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Euro struggles to extend gains as traders reassess Fed and ECB outlook

  • EUR/USD holds modest gains but lacks follow-through in thin holiday trading.
  • Weaker US jobs data pushes back Fed rate hike expectations.
  • Softer Eurozone inflation clouds the outlook for another ECB rate hike.

EUR/USD holds onto modest gains on Friday but struggles to extend its advance as the US Dollar (USD) stabilizes following Thursday's weaker-than-expected US jobs report. Market activity remains subdued as US financial markets are closed for the Independence Day holiday.

At the time of writing, the pair is trading around 1.1438 after hitting an intraday high of 1.1462, but it remains on track to snap a two-week losing streak. The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, is trading around 100.76 after falling to a two-week low of 100.56.

Traders are reassessing the monetary policy outlook for both the Federal Reserve (Fed) and the European Central Bank (ECB). Weak US jobs data pushed back expectations for a near-term Fed interest rate hike, while softer-than-expected Eurozone inflation data earlier this week raised doubts about whether the ECB will deliver another rate hike this year.

However, the risk of monetary policy tightening remains for both central banks, with inflation still running above their respective 2% targets. Markets still expect the Fed to raise interest rates later this year, while the ECB could deliver another rate hike if second-round inflationary effects from the recent energy shock begin to materialize.

Fed Chair Kevin Warsh and ECB President Christine Lagarde struck a cautious tone at the ECB Forum in Sintra earlier this week. Warsh said, "We are in the price stability business," while acknowledging that "inflation risks have come down." Meanwhile, Lagarde said risks are "more broadly balanced than a few weeks ago" and that the Eurozone is "not in stagflation." She added that the ECB "will take necessary steps to contain inflation."

ING strategist Francesco Pesole highlighted that, "The risks are that markets price out all ECB tightening before doing the same for Fed tightening. While the impact beyond the near term can still be a net positive for EUR/USD (which often responds asymmetrically stronger to the Fed), this dynamic argues against a fast return to 1.16-1.17 from here."

"We expect rallies to start getting tired beyond 1.150-1.153 in current conditions, and forecast a return above 1.16 only late in the summer."

US Dollar Price Today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Canadian Dollar.

USDEURGBPJPYCADAUDNZDCHF
USD-0.06%-0.05%0.13%0.16%-0.15%-0.19%-0.00%
EUR0.06%0.00%0.17%0.21%-0.13%-0.11%0.05%
GBP0.05%0.00%0.15%0.19%-0.15%-0.12%0.05%
JPY-0.13%-0.17%-0.15%0.05%-0.32%-0.32%-0.12%
CAD-0.16%-0.21%-0.19%-0.05%-0.37%-0.36%-0.16%
AUD0.15%0.13%0.15%0.32%0.37%0.02%0.22%
NZD0.19%0.11%0.12%0.32%0.36%-0.02%0.19%
CHF0.00%-0.05%-0.05%0.12%0.16%-0.22%-0.19%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

Author

Vishal Chaturvedi

I am a macro-focused research analyst with over four years of experience covering forex and commodities market. I enjoy breaking down complex economic trends and turning them into clear, actionable insights that help traders stay ahead of the curve.

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