The euro remains under heavy pressure as expectations for tighter US monetary policy continue to strengthen. EURUSD has fallen roughly 0.8% this week, slipping below 1.1400 and marking a fresh low for 2026.
Key Drivers
Eurozone Growth Concerns
Recent PMI data highlighted ongoing weakness across the euro area economy.
- Eurozone Services PMI: 48.9 (vs 47.7 previously)
- Eurozone Manufacturing PMI: 51.3 (vs 51.6 previously)
While the services sector showed a modest improvement, overall business activity remains subdued, reinforcing concerns about the region's growth outlook.
Rising Fed Expectations
The US dollar remains the dominant force in FX markets.
Last week's FOMC meeting reinforced expectations that US interest rates could move higher before year-end. Fed Chair Kevin Warsh reiterated the central bank's commitment to restoring price stability, prompting markets to reassess the policy outlook.
- Markets now price a 70% probability of a September rate hike.
- December hike expectations have risen to 86%.
- Bank of America expects three 25bp rate increases in 2026.
- Deutsche Bank forecasts hikes in September and December.
Stronger US Data Supports the Dollar
The dollar index climbed to its highest level in more than a year, extending its recovery from June lows.
US economic data continues to outperform:
- Services PMI: 55.7 (vs 55.1 previously)
- Manufacturing PMI: 51.3 (vs 50.7 previously)
The resilience of the US economy continues to attract capital flows into the dollar.
Political and Geopolitical Backdrop
Political uncertainty in the UK following Prime Minister Keir Starmer's resignation has added another layer of caution toward European currencies.
Meanwhile, developments in the Middle East remain supportive for broader market sentiment. The 60-day framework agreement between the US and Iran has helped reduce immediate geopolitical risks, although negotiations remain ongoing.
What's Next?
Markets now shift their attention to this week's US PCE inflation report — the Federal Reserve's preferred inflation measure — alongside a fresh batch of US economic data that could further influence rate expectations.
Technical Outlook
EURUSD remains firmly in a bearish trend after breaking to a new yearly low below 1.1400.
The move into fresh lows suggests sellers remain in control, although the H4 chart shows oversold conditions that may trigger a short-term corrective rebound.
For now, any recovery is likely to be viewed as a technical correction unless buyers can reclaim key resistance levels.
