EUR/USD Price Holds 1.1660 as Fed Cut Bets and Fiscal Divergence Drive Trade

EUR/USD Steadies Near 1.1660 After PCE Data

The euro-dollar pair (EUR/USD) is holding around 1.1660, stabilizing after U.S. inflation figures came in line with forecasts. The July core PCE index rose 0.3% MoM and 2.9% YoY, its highest since February, while headline PCE increased 0.2% MoM and 2.6% YoY. That combination shows inflation staying above the Fed’s 2% target, but not accelerating beyond expectations. U.S. personal spending jumped 0.5%, stronger than the prior 0.3%, while personal income rose 0.4%, another sign of resilient consumption. These figures allowed the U.S. Dollar Index (DXY) to reclaim ground near 98.00, but the euro has still gained 2% this month, underscoring broader weakness in the greenback.

Fiscal Divergence Lends Euro Support

The single currency has been propped up by diverging fiscal and political conditions across the Atlantic. The euro area has leaned on policy commitments, including infrastructure and industrial support spending, while the United States faces rising fiscal risks with debt now over $36 trillion and political pressure mounting on the Federal Reserve. This divergence keeps capital flowing into the euro, with EUR/USD logging an 11% year-to-date gain. Even as Eurozone inflation in France and Italy undershot forecasts, the European Central Bank is expected to hold steady, letting fiscal spending carry the weight. By contrast, U.S. fiscal credibility is being questioned, undermining long-term dollar demand.

Technical Landscape Between 1.163 and 1.172

From a chart perspective, EUR/USD has consolidated inside 1.163–1.172, with moving averages converging around 1.164–1.165. The RSI near 52 signals balance, with rallies toward 60 running into supply and dips near 40 consistently attracting demand. Fibonacci retracements reinforce 1.154–1.163 as a structural floor. A push through 1.172 could open upside toward 1.178–1.180, while a breakdown under 1.163 risks exposure to 1.159–1.154. On shorter-term charts, EUR/USD holds above the 50-EMA at 1.1651 and 200-EMA at 1.1634, with the RSI steady at 54, confirming moderate bullish bias.

Rate Cut Bets Shape Dollar Sentiment

Markets are pricing in an 85–89% probability of a 25 bps Fed cut in September, even after GDP was revised higher to 3.3% in Q2. Initial jobless claims fell to 229,000, showing no labor market collapse yet, but inflationary stickiness and slowing hiring momentum justify easing. Fed governor Christopher Waller has endorsed cuts, with more potentially over the next 3–6 months. The risk, however, lies in whether higher PCE readings in coming months reverse dollar weakness. Political interventions, including President Trump’s battle with Fed officials, have injected volatility into rate expectations and weakened the perception of Fed independence, another drag on the dollar.

Eurozone Growth and Inflation Expectations

An ECB survey showed consumers expect Eurozone inflation to average 2.6% over the next year, unchanged from June, giving policymakers cover to keep rates steady. Growth across the bloc remains uneven, with industrial production lagging but fiscal programs keeping demand afloat. If trade tensions with the U.S. escalate, particularly over tariffs, the euro’s resilience could be tested, but for now, policy divergence remains the dominant driver.

EUR/USD Trading Range and Next Triggers

The immediate outlook is shaped by the 1.163–1.172 corridor. The pair has bounced from three-week lows at 1.1580 back to 1.1670, with traders eyeing 1.170–1.172 as the key breakout barrier. A move through that level clears the way to 1.178–1.180, while failure to hold 1.163 would refocus attention on 1.159–1.154 and potentially 1.140 if momentum turns sharply. The consolidation is reflected in small-bodied candles with long wicks, signaling indecision, but the balance of risk is skewed to the upside as long as U.S. fiscal uncertainty persists.

EUR/USD Verdict – Hold With Upside Bias

EUR/USD remains supported above 1.165, with technical floors at 1.163–1.154 and resistance near 1.172. Macro divergence favors the euro, but uneven growth caps momentum. With markets betting heavily on Fed cuts and political pressure eroding dollar credibility, the bias remains toward a Hold with upside potential into 1.178–1.180, conditional on Europe delivering stronger growth.

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