Euro climbs to weekly high as as soft US data fuels dovish Fed expectations

• The Euro rises sharply against the US Dollar, with EUR/USD climbing above the 1.1600 mark.
• The US Dollar Index slides to 98.34, its lowest since July 28, amid broad USD weakness.
• Minneapolis Fed President Kashkari supports two cuts this year, citing a slowing economy and cooling labor market.

The Euro (EUR) trades with a positive bias against the US Dollar (USD) on Wednesday, with EUR/USD extending gains above the 1.1600 level, marking its highest level in over a week. The move comes as the Greenback faces renewed selling pressure, driven by mounting speculation that the Federal Reserve (Fed) will resume easing monetary policy in September amid a weakening US economic outlook.

At the time of writing, the EUR/USD pair is trading around 1.16300 during American trading hours, up nearly 0.50% on the day. Meanwhile, the US Dollar Index (DXY), which tracks the value of the Greenback against a basket of six major currencies, is hovering near 98.34, falling beneath the lower end of its post-Nonfarm Payrolls (NFP) range and hitting its lowest level since July 28.

Weak US economic data and cautious remarks from Fed officials have revived expectations of a more dovish policy stance, exerting fresh pressure on the US Dollar. Disappointing figures, most notably the Nonfarm Payrolls (NFP) report and the ISM Services PMI, have cast doubt on the resilience of the world’s largest economy. As a result, market participants are increasingly confident that the Fed could begin lowering interest rates as early as next month. According to the CME FedWatch Tool, the probability of a September rate cut has surged above 90%, while markets are also pricing in a 58% chance of a second cut in October, and around 46% by December.

Adding weight to those expectations, Minneapolis Fed President Neel Kashkari said on Wednesday the US economy is slowing, citing signs of a cooling labor market. Speaking to CNBC, Kashkari reiterated that two rate cuts this year remain appropriate, and suggested it may be time to begin adjusting policy rates in the near term. He also flagged uncertainty around the inflationary impact of recently proposed tariffs, stating it is “still not clear” how they will filter through to broader price pressures.

While the Fed is now seen as nearly certain to cut rates, the ECB remains far more cautious, with markets assigning only around a 60% probability of another rate cut before March 2026. This has opened the door for fresh Euro gains, especially as the European Central Bank (ECB) maintains a cautious approach to policy easing. The ECB left its key interest rates unchanged at its July meeting, pausing its year-long rate-cutting cycle after delivering eight consecutive reductions.

A Reuters poll conducted August 1–5 shows analysts predicting EUR/USD could rise to $1.17 by October, and possibly $1.20 within a year.

Adding to the uncertainty, investors are closely watching US President Donald Trump’s anticipated nomination to fill the vacancy left by Fed Governor Adriana Kugler’s surprise resignation last week. Speculation is building that Trump may appoint someone positioned to succeed Jerome Powell when his term as Fed Chair ends.