Euro holds modest gains as US Dollar lacks momentum, Eurozone inflation in focus

The Euro managed to make modest gains on Monday in US trading hours, while the US Dollar struggled to maintain its recent strength. This came after hawkish comments from Federal Reserve Chair Kevin Warsh at the Jackson Hole Symposium, which signaled potential further monetary tightening. The Euro traded around 1.1595, up 0.11% for the day.

Earlier in the week, the US Dollar experienced its strongest performance in over a week, after the Fed Chair's remarks, reaching its highest level since August 14. The US Dollar Index, which tracks the dollar's value against a basket of six major currencies, also peaked at 99.72, its highest since August 14. US Treasury yields surged following Warsh's speech, reaching a 10-year yield near 4.75%, its highest since January 2025.

Markets are now pricing in a 61% chance of a Fed rate increase in September, up from 38% before Warsh's remarks. Meanwhile, Eurozone inflation data did not significantly affect expectations that the European Central Bank would raise interest rates next month. Strategists at Brown Brothers Harriman believe that Eurozone inflation data on Tuesday will highlight persistent price pressures, which could warrant a rate hike by the ECB towards the upper end of its estimated neutral range.

Inflation concerns in both the US and Eurozone are driving expectations for tighter monetary policy. However, the US Dollar is expected to maintain its advantage due to hawkish Fed expectations, higher Treasury yields, and geopolitical tensions, which continue to support the Greenback in the short term.