Euro consolidates below two-month high as US Dollar steadies
EUR/USD consolidates losses on Tuesday after pulling back from a two-month high of 1.1614 reached the previous day.
The Euro (EUR) steadies close to a two-month high of 1.1614, with an earlier daily peak. The US Dollar (USD) provides support to the Euro, as traders remain cautious amid ongoing Middle Eastern tensions and their potential impact on monetary policy expectations. The Eurozone Economic Sentiment index surged to 31.4 in August, surpassing forecasts and outperforming the 25.4 expected.
However, the Euro struggles to capitalize on this improvement as rising US Treasury yields bolster the Greenback. The US Dollar Index (DXY) is currently around 99.60, up from the two-month low of 99.30 on Monday. US economic data, including the ADP Employment Change rising to 9.5K in the week ending August 1 and the Eurozone ZEW Survey showing stronger sentiment, fail to spur a stronger Euro.
The Federal Reserve (Fed) rate-hike outlook appears likely to be delayed, with a 65% probability of a pause in August, down from earlier expectations of a hike. Although heightened US-Iran tensions persist and could affect inflation forecasts, markets remain cautious about a potential rate increase later in the year. The European Central Bank (ECB) anticipates Eurozone inflation to hover around 3% throughout the year, above the 2% target, while also expecting a rate hike in September.
The ECB's primary objective is price stability, achieved through interest rate adjustments, with Quantitative Easing (QE) employed during economic crises and Quantitative Tightening (QT) when growth and inflation are on the rise.
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