EUR/USD steadies above 1.1700 as US Dollar stabilizes in holiday-thinned trade

The Euro (EUR) is struggling to extend its advance against the US Dollar (USD) as the Greenback steadies after slipping to a more than one-month low during the Asian session, with EUR/USD easing from the upper end of the trading range that has contained price action since early August.

At the time of writing, EUR/USD is trading around 1.1711, easing slightly from the day’s high of 1.1736, yet still up about 0.20% on the day as sentiment remains in favor of the Euro against a broadly softer Greenback. The US Dollar remains under pressure from a combination of economic and political headwinds. Concerns over Washington’s protectionist trade agenda and mounting scrutiny of the Federal Reserve’s (Fed) independence are clouding the monetary policy outlook. Rate cut expectations remain firmly in place, with the CME FedWatch Tool showing markets price in nearly a 90% probability of a 25 basis-point (bps) reduction at the September 16-17 FOMC meeting.

The US Dollar Index (DXY), meanwhile, is showing signs of stabilization in thin holiday trade, holding just above the 97.50 mark as investors turn cautious ahead of key US economic data releases later this week.

On the Euro side, sentiment remains supported by signs of resilience in the bloc’s economy. The final HCOB Manufacturing Purchasing Managers' Index (PMI) for August came in at 50.7, slightly above the flash estimate of 50.5 and confirming a second consecutive month of expansion. The Composite PMI also improved to 51.1 from July’s 50.2, marking the fastest pace of private-sector growth in over a year. While Germany stayed just below the 50 threshold at 49.8, the print was its strongest in more than three years, with Southern Europe leading the recovery.

Looking ahead, attention turns to the European Central Bank (ECB), with President Christine Lagarde due to speak later in the day. On Tuesday, focus will shift to preliminary Eurozone inflation data for August, with the Core Harmonized Index of Consumer Prices (HICP) expected to ease slightly to 2.2% YoY from 2.3%, while the headline rate is seen steady at 2.0% YoY. Inflation stabilizing near the ECB’s 2% medium-term target suggests policymakers can afford to keep rates on hold for now.

On the US side, the calendar is packed with potential market movers. The ISM Manufacturing PMI will be released on Tuesday, followed by the ISM Services PMI later in the week, alongside weekly Jobless Claims. The highlight will be Friday’s Nonfarm Payrolls (NFP) report, which could be decisive for the Fed’s September meeting.