Euro approaches two-week high on Fed's prospects

The euro rose in European markets on Wednesday against a basket of global currencies, extending its gains for the second consecutive day against the US dollar and nearing a two-week high, driven by growing concerns over Federal Reserve stability.

Expectations of a European interest rate cut in September have declined due to persistent inflationary pressures on European Central Bank policymakers. To reprice these expectations, investors are awaiting further economic data from the Eurozone.

The Price

• EUR/USD exchange rate today: The euro rose against the dollar by 0.1% to $1.1586, up from today’s opening price of $1.1575. The lowest level recorded was $1.1564.

• The euro closed Tuesday up by around 0.1% against the dollar, resuming gains that had paused the previous day due to correction and profit-taking from a two-week high of $1.1597.

The US Dollar

The US Dollar Index declined by 0.1% on Wednesday, resuming losses that had paused for two days, and moving back toward a two-week low — reflecting weakness in the US dollar against a basket of global currencies.

Market pricing for a US interest rate cut in September rose from 85% to 90% after data showed an unexpected slowdown in US services sector activity in July.

Markets are focusing on President Donald Trump’s nominations to the Federal Reserve following the resignation of Governor Adriana Kugler last Friday, as well as his pick for the next head of the Bureau of Labor Statistics.

Trump stated on Tuesday that he will soon announce decisions regarding Kugler’s short-term replacement, including his choice for the next Federal Reserve Chair. Treasury Secretary Scott Bessent was ruled out as a candidate to succeed current Chair Jerome Powell, whose term ends in May 2026.

Trump said that Bessent “does not want” to become Fed Chair, but noted that four other candidates are in the running for the position.

European Interest Rates

• The Consumer Price Index in Europe rose by 2.0% in July, above market expectations of a 1.9% increase and matching the previous reading of 2.0%.

• This data highlights ongoing inflationary pressures on policymakers at the European Central Bank.

• According to Reuters sources, a clear majority at the latest ECB meeting expressed a preference to keep interest rates unchanged in September — for the second consecutive meeting.

• Market pricing of a 25-basis-point rate cut by the ECB in September is currently holding below 30%.

• To reprice these expectations, investors are closely watching upcoming economic data in Europe, along with comments from ECB officials.