EUR Gains on Softer US Outlook, Fed Rate Hikes Now Less Likely

The Euro has shown modest upside bias against the US Dollar after recent labor market data from the United States reduced expectations of Federal Reserve rate hikes.

Rabobank's Senior FX Strategist Jane Foley notes that weak US labor data was the clear trigger for the move higher in EUR/USD, which traded at its highest levels since June 17. This strength may give the illusion of a buoyant Euro, but Foley highlights resilient Eurozone data alongside growth headwinds and limited appetite for strong Euro appreciation.

Rabobank now expects EUR/USD to reach 1.16 in three months, assuming no major Eurozone growth surprises, with the bank's research team viewing the Fed as unlikely to raise rates this year. This reduction in rate hike speculation is seen as the main driver of the modest upside bias in EUR/USD.