EUR/USD holds gains around 1.1650 due to cautious tone surrounding ECB outlook
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EUR/USD gains ground as the ECB is expected to pause easing policy in September.
The Euro is bolstered by improved market sentiment fueled by hopes for a potential end to the Ukraine-Russia war.
The softening in US economic data has led traders to factor in the possibility of two rate cuts this year.
EUR/USD edges higher after registering losses in the previous session, trading around 1.1650 during the Asian hours on Monday. The pair receives support as the Euro (EUR) gains ground, driven by the prevailing expectations that the European Central Bank (ECB) will pause the easing cycle in September.
Additionally, the Euro receives support from improved market sentiment due to the possibility of the Ukraine-Russia war coming to an end. News of a possible Trump-Putin meeting next week leads some to expect a deal that could halt hostilities in Ukraine.
The EUR/USD pair also appreciates as the US Dollar (USD) struggles following the weakening US economic data, which prompted traders to price in the possibility of more interest rate cuts this year. Markets are now pricing in approximately 89% odds of a Fed rate cut at the September meeting. Traders are also pricing in a 58 bps possibility of another rate cut by the end of this year.
Fed Governor Michelle Bowman stated on Saturday that three interest rate cuts are likely to be appropriate this year. Bowman added that the apparent weakening in the labor market outweighs the risks of higher inflation to come.
Traders will likely observe the upcoming US consumer inflation figures due to be published on Tuesday, followed by the release of the preliminary UK Q2 GDP print and the US Producer Price Index (PPI) on Thursday. The key data is expected to offer meaningful momentum to spot prices and guide the next phase of the directional move.
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