Euro benefits from weaker US Dollar as ECB decision looms

The Euro (EUR) experienced modest gains at the opening of North American trading on Monday, buoyed by a weaker US Dollar (USD) and unexpectedly robust Eurozone Gross Domestic Product (GDP) data. The Euro was trading around 1.1626, while the US Dollar faced pressure from Japanese Yen (JPY) strength. The Greenback declined to a seven-month low of 154.50 against the Japanese Yen, and the US Dollar Index (DXY) hovered near two-week lows of 98.91.

Eurozone economic growth expanded by 0.6% quarter-over-quarter in the second quarter, surpassing expectations of 0.4% growth and annual inflation rose to 1.2% from the previous 1.0%.

However, the Euro's upside potential may be constrained until the European Central Bank (ECB) releases its monetary policy decision on Thursday. Analysts at Brown Brothers Harriman predict the ECB will raise its Deposit Facility Rate by 25 basis points to 2.50%, marking its second increase this year. The upcoming ECB meeting will also reveal the central bank's September macroeconomic projections, which analysts expect to show little change.

BBH believes the Eurozone macro backdrop favors bringing the policy rate closer to the upper end of the ECB's 1.75%-3.00% neutral range.

Tensions escalated after the US military targeted three Iranian crude oil tankers in retaliation for Iranian missile strikes on US Navy ships. Saudi Aramco's Jazan refinery was also hit by a recent strike. WTI crude oil traded near $90.50 per barrel, close to its highest level since July 24. US inflation data will be closely monitored for clues about the Federal Reserve's upcoming policy decision, especially after the strong employment report on Friday.

The Producer Price Index (PPI) will be released on Thursday, followed by the Consumer Price Index (CPI) on Friday. Current market expectations suggest a 58% chance of a rate hike at the Federal Reserve's September meeting.