Euro weakens as US Dollar strengthens, ECB dovish pricing fades

The euro has weakened by 0.5% against the US dollar, making it a mid-tier performer among G10 currencies in a climate of broad-based dollar strength, according to Scotiabank’s Chief FX Strategists Shaun Osborne and Eric Theoret

This movement reflects fading market expectations for further dovish action from the European Central Bank (ECB), as traders reassess the outlook for eurozone monetary policy.

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The euro’s resilience is notable, as it continues to hold above last week’s lows despite downward pressure from recent PMI data and a lack of major domestic catalysts.

PMI data and ECB expectations in focus

Recent eurozone PMIs have done little to support the euro.

The manufacturing PMI remained unchanged at 49.4, missing expectations of 49.7, while the services PMI met forecasts, rising modestly to 50.0 from 49.7, just touching the expansion threshold. 

This tepid economic backdrop has weighed on the euro’s performance, with movement largely headline-driven in the absence of significant domestic events.

Looking ahead, the week’s data calendar includes German IFO figures on Tuesday and French inflation data on Friday, alongside a packed schedule of ECB speeches. 

Market expectations for ECB rate cuts have moderated, with traders now pricing in just 20 basis points of easing by year-end, down from 25 basis points the previous week.

This shift indicates a diminishing dovish bias and suggests that the ECB may be nearing the end of its easing cycle.

Technical outlook softens for EUR/USD

The technical picture for EUR/USD is showing signs of softening.

Although the pair has maintained a multi-month sequence of higher lows and higher highs, momentum has slowed, and the Relative Strength Index (RSI) has drifted back toward the neutral 50 level. 

The 50-day moving average at 1.1364 remains a key support level, with near-term support expected around 1.1420 and resistance above 1.1520. 

The market remains sensitive to macroeconomic data and central bank rhetoric, which could drive further volatility in the days ahead.

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