EUR/USD retreats below 1.1700 as US Dollar firms

The Euro (EUR) weakens against the US Dollar (USD) on Monday, with EUR/USD falling back below the 1.1700 psychological level as the Greenback picks up modest strength following last Friday’s sharp slide driven by Federal Reserve (Fed) Chair Jerome Powell’s dovish remarks at the Jackson Hole Symposium.

EUR/USD is easing off a four-week high of 1.1742 reached on Friday. At the time of writing, the pair is trading near 1.1646, down around 0.60% on the day. Meanwhile, the US Dollar Index (DXY) — which measures the Greenback against a basket of six major currencies — is edging higher after falling nearly 1% on Friday in the wake of Powell’s dovish remarks. The index has reclaimed the 98.00 handle and is currently trading around 98.23, up approximately 0.50% on the session, as the Greenback finds renewed demand across the board.

Monday’s pullback in the Euro comes despite mixed economic data out of Germany. The IFO Business Climate Index rose to 89.0 in August, beating the consensus forecast of 88.6 and improving from July’s reading of 88.6. The Current Assessment index, however, slipped to 86.4, falling short of the expected 86.7 and down from 86.5 previously. In contrast, the Expectations component jumped to 91.6, well above the forecast of 90.2 and up from 90.8 in July. While the data reflected underlying resilience in the German economy, it failed to provide meaningful support for the Euro.

Adding to the cautious tone around the Euro, European Central Bank (ECB) President Christine Lagarde struck a downbeat note in an interview on Monday. Speaking with Fox Business, Lagarde described the Eurozone economy as “resilient but not thriving,” projecting growth of just 1% for 2025. She also flagged persistent external headwinds, including elevated US tariffs, which she said are creating “major disruption” for Europe’s export sector. Her comments reinforced expectations that the ECB will maintain its wait-and-see stance, further widening the policy divergence with the Fed, which now faces growing calls to begin cutting rates as early as September.

Looking ahead, focus will turn to a heavy economic calendar that could shape the near-term trajectory for EUR/USD. In the US, key releases include Consumer Confidence and Durable Goods Orders on Tuesday, followed by revised Q2 Gross Domestic Product (GDP) and weekly Initial Jobless Claims on Thursday. The spotlight, however, will be on Friday’s release of Core Personal Consumption Expenditure (PCE) inflation, the Fed’s preferred gauge, which could be pivotal for cementing expectations around a potential September rate cut.

Across the Atlantic, attention will center on Thursday’s publication of the ECB Monetary Policy Meeting Accounts, offering deeper insight into the central bank’s latest decision and its tolerance for further easing. Friday’s releases of Germany’s Consumer Price Index (CPI) and Retail Sales will also be closely watched for signals on Eurozone inflation dynamics and consumer health.