EURUSD Rallies on Falling Rate Hike Expectations

The EURUSD pair has resumed its upward trend after the weekend, reaching nearly 0.6% higher since Friday and eyeing the psychological level of 1.1600 for the first time in two months.

This gain is largely due to a decline in expectations for US interest rate hikes following disappointing macro data. The past two weeks saw non-Farm Payrolls (NFP) employment unexpectedly fall, core inflation drop to its lowest level since 2021, and consumer spending lose steam due to elevated gas prices.

The market had originally tightened financial conditions despite unchanged interest rates, but has now turned the tables and gone on the offensive. Swap-implied odds of a rate hike before the end of 2026 dropped within a week from certainty down to 85%, while September now stands at under 30% probability.

A close above 1.1600 today would solidify the newly established uptrend, even in the face of unlikely anti-euro surprises. Conversely, if the price turns back toward Friday's close, further dollar weakness will depend on upcoming signals from the US economy.