Euro Tipped to Gain Against Dollar as Fed Rate Cut Bets Rise

Rabobank analysts see a modest upside bias for the euro against the US dollar, driven by changing expectations for Federal Reserve rate cuts. The bank's strategists argue that softer US economic data and comments from Fed officials have led to higher probabilities of rate cuts later this year.

This repricing of Fed rate cut expectations has reduced the dollar's yield advantage, making the euro relatively more attractive. Rabobank notes that while the euro's upside is likely to be modest, the risk-reward for EUR/USD has tilted in favor of the single currency.

The bank forecasts that the pair could drift higher toward the 1.09 area if the dollar continues to lose ground. However, a break below the 1.07 support level would negate the bullish bias and could open the door for further downside.