EUR/USD Firms as Dollar Remains Soft Amid Policy Divergence

The EUR/USD exchange rate has stabilized around 1.1671 after briefly touching its three-month high of 1.1711 on Friday. The dollar's decline continues, linked to last week's decision by the US Treasury to increase buybacks of longer-dated government securities, which revived concerns over the US fiscal outlook and rising debt.

The dollar's recovery remains limited, with the US Dollar Index hovering around 98.95 after briefly pushing above 99.00. In contrast, the euro has drawn support from stronger German releases, including second-quarter GDP growth at 0.3%, exceeding expectations, as well as IFO Business Climate data beating forecasts.

Policy expectations diverge between the Fed and ECB, with the Federal Reserve seen holding interest rates steady while the European Central Bank is expected to raise borrowing costs in September.