Euro holds ground against US Dollar amid Fed uncertainty ahead of US CPI

EUR/USD remains stable against the US Dollar on Monday as the US Dollar steadies post-NFP data, while oil prices surge due to uncertainty surrounding the Strait of Hormuz's reopening. The pair is trading near 1.1553, barely changing for the day. For over a week, price action has been contained within a tight range, and the US Dollar Index (DXY) has been attempting to stabilize above 99.50.

As traders evaluate the Federal Reserve's (Fed) monetary policy and Middle Eastern developments, the sideways trading persists. Weaker-than-anticipated July Nonfarm Payrolls (NFP) data led to reduced expectations of a Fed rate hike at the September meeting. However, high oil prices raise concerns about sustained inflation above the Fed's target, making it difficult for traders to dismiss the possibility of a rate hike.

Markets still anticipate a 44% chance of a September hike, according to the CME FedWatch Tool. Analysts at ING point out that with July data now in and August typically a quiet month for the European Central Bank (ECB), markets have effectively received a "quasi-commitment to a September hike," limiting surprises from the Eurozone soon.

Consequently, ING believes EUR/USD is mostly influenced by the USD side. The bank suggests that a softer US CPI print would boost the chances of breaching the 1.160 level this week, with the next resistance being the 200-day moving average at 1.1630. Geopolitically, US President Donald Trump is engaged in "semi-negotiating" with Tehran while softening its military actions.

Iran denies talks and links the Strait of Hormuz's reopening to US concessions, such as sanctions relief, war damage compensation, and security guarantees.