Introduction to the Euro’s Recovery
The euro saw a rise in European markets on Friday against a basket of major currencies, extending its recovery for a second consecutive session after hitting a two-month low versus the US dollar. This rebound was driven by dip-buying at lower levels, as investors await key eurozone inflation data for July. The release of this data is expected to provide insight into whether the European Central Bank (ECB) will raise interest rates in September.
Price Overview
The EUR/USD rose by 0.15% to $1.1429, up from the day’s opening price of $1.1412, after hitting an intraday low of $1.1405. On Thursday, the euro gained 0.1% — its first daily gain in six sessions — recovering from a two-month low of $1.1400. Over the month of July, the euro fell 3.2% against the dollar, marking its first monthly loss since December 2024. The decline was driven by profit-taking from the 4-year high at $1.1830, along with fears that the new US–EU trade deal could spark an economic slowdown in the eurozone.
ECB Interest Rate Outlook
The ECB kept its key interest rates unchanged at 2.15% last week — the lowest level since October 2022 — following seven consecutive rate cuts. The bank opted to pause its monetary easing cycle, awaiting more clarity on future US–EU trade relations. ECB President Christine Lagarde stated after the meeting: “We are in a wait-and-see mode,” and added that the eurozone economy has shown resilience despite global uncertainties. According to Reuters sources, a clear majority of ECB members preferred to keep rates unchanged at the upcoming September meeting — which would mark a second consecutive pause.
Eurozone Inflation Data
To reassess the policy outlook, investors are now awaiting July’s inflation figures, due at 10:00 GMT. Market expectations are for headline annual CPI to slow to 1.9% in July from 2.0% in June, while core CPI is expected to remain steady at 2.3%. If the inflation figures exceed market forecasts, the odds of a September rate cut by the ECB will fall further, potentially boosting euro exchange rates in the forex market.
Euro Outlook
At Economies.com, we expect that if today’s inflation figures exceed market forecasts, the odds of a September rate cut by the ECB will fall further, potentially boosting euro exchange rates in the forex market. The euro remains on track for its steepest weekly loss since 2022 due to strong opposition from France and Germany against the recent US–EU trade agreement. So far this week, the euro is down approximately 2.65% against the US dollar, on track for its third weekly loss this month and the sharpest weekly drop since September 2022.
US–EU Trade Agreement
The new trade deal between the US and EU includes a 15% US tariff on European imports — including cars, pharmaceuticals, and semiconductors — starting August 1. A selected group of US goods will be fully exempt from EU tariffs under a “no quid pro quo” framework, including aircraft parts, semiconductor tools, some generic drugs, chemicals, and strategic agricultural products. The EU committed to investing up to $600 billion in the US economy during Trump’s second term and pledged to purchase $750 billion in US energy products — including LNG and nuclear coal — over the next three years.
European Reactions
On Monday, France labeled the trade agreement a “black day” for Europe, accusing the EU of caving to Trump in an unbalanced deal. German Chancellor Friedrich Merz warned that the tariffs would cause “severe” damage to the German economy. The reactions from France and Germany reflect the strong opposition to the trade agreement, which could have significant implications for the eurozone economy.
Conclusion
In conclusion, the euro’s recovery against the US dollar is a significant development in the foreign exchange market. The upcoming release of eurozone inflation data for July will provide further insight into the ECB’s interest rate decision in September. The US–EU trade agreement has sparked strong opposition from France and Germany, which could have significant implications for the eurozone economy. As the situation continues to unfold, investors will be closely watching the developments in the eurozone and their impact on the euro exchange rates.
