Euro hits seven-week high as dollar weakens on fading Fed hike bets

The euro climbed for a fifth consecutive session on Monday, reaching its highest level against the US dollar since June 17, as markets continued to pare back expectations for further Federal Reserve tightening. EUR/USD traded near the mid-1.1500s during Asian hours, buoyed by broad dollar weakness tied to falling oil prices and a shift in US monetary policy sentiment.tmgm+1

Fed Pause Undermines Dollar

The Federal Reserve held rates steady at 3.50%–3.75% at its July 29 meeting, its fifth consecutive pause. While Chair Kevin Warsh maintained hawkish rhetoric, markets interpreted the decision as dovish, with futures pricing in sharply reduced odds of a September hike — down to about 60% from nearly 79% before the meeting. Softer US economic data, including annualized Q2 GDP growth of just 1.5% and muted core PCE inflation, further weighed on the greenback.interactivecrypto+2

Brown Brothers Harriman's Elias Haddad argued that "the USD rally from May has run its course," with the US Dollar Index "poised to retreat back into a 96.00–100.00 range," citing Fed Chair Warsh's "failure to turn tough inflation rhetoric into a credible policy".tmgm

ECB Hawkishness Widens Policy Gap

The European Central Bank, which raised rates by 25 basis points to 2.25% in June, has signaled another increase remains on the table for its September 10 meeting. Eurozone Q2 GDP surprised to the upside at 0.4%, while July headline inflation ticked higher to 2.9%. Societe Generale's Sam Cartwright said the data "should support another ECB rate hike in September," as resilient growth gives the central bank room to maintain its hawkish stance.investing+2

The July manufacturing PMI was revised lower from a preliminary reading of 52.0 to a final figure, though the sector remained in expansion territory.tradingeconomics

Oil Slump Adds Tailwind

A diplomatic breakthrough between the US and Iran sent crude oil prices tumbling more than 4% on Monday after President Trump announced direct talks and paused planned military strikes. The drop in energy prices eased inflation fears and further reduced the case for aggressive Fed tightening, compounding the dollar's losses across major pairs.investing+1