Euro Weakens as Fed Signals Fewer Rate Cuts in 2025

The euro slipped to $1.16, its lowest level in a month. This momentum has been building on the US side, with stronger inflation data and signs that the Federal Reserve won’t be in a hurry to cut interest rates this year. That made the dollar more attractive and pulled the euro lower.

On top of that, President Trump confirmed he’s keeping Jerome Powell as head of the Fed.

Why the US Dollar Is Rising

The main pressure on the euro was exerted by a modest but noticeable strengthening of the US dollar. Recent inflation data led to the idea that the Federal Reserve will not cut interest rates several times this year.

In addition, President Trump said that he does not plan to remove Jerome Powell as Fed Chairman, and this in turn instilled confidence in stability.

All this increased demand for the dollar and led to a decrease in the EURUSD rate.

Trade Tensions Still There

Another factor affecting the euro is trade uncertainty. Earlier this month, President Trump said 30% tariffs on European imports would come into effect on August 1. Although Trump has since signaled a willingness to negotiate, the EU has responded by delaying retaliatory tariffs and declaring its intention to reach an agreement by August.

Markets are now looking for any sign of progress before the August deadline.

ECB Policy Outlook Remains Steady

The European Central Bank ECB is likely to keep interest rates steady at its meeting next week. However, many investors still expect that the ECB might cut rates one more time before the end of the year, possibly to give the economy more support if growth slows or inflation eases.

In June, overall inflation across the eurozone was 2%. That’s right in line with the ECB’s target. But when you remove food and energy prices, which tend to jump around a lot, core inflation was a bit higher at 2.3%. That means price pressure beneath the surface is still relatively firm.

Because of that, the ECB has some breathing room. It doesn’t have to rush into more rate cuts unless the economy weakens or inflation falls again. So for now, the central bank can afford to wait and see how things develop before taking further action.

Current Trend is Leaning to Bearish

The U.S. dollar has rebounded due to firmer inflation data, higher Treasury yields, and reduced expectations for Fed rate cuts. These factors have kept the greenback strong and pressured EURUSD. On the charts, EURUSD recently broke below the psychological 1.1600 level and key short term support zones. Many analysts view this breakdown as the start of a new bearish trend. Speculative long positions in the euro have risen, but large institutional net shorts suggest bearish undercurrents remain strong.

Overall, the pair is currently trading below crucial support levels and likely to stay under pressure unless the dollar weakens or Europe's outlook improves.

You Should Watch Next

• Ahead are U.S. jobless claims and retail sales that could impact Fed expectations and Treasury yields. A firm dollar likely keeps EURUSD under pressure.
• With the August 1 tariff deadline approaching, any signs of progress or escalation in U.S. - EU trade negotiations could move the euro.
• Watch for ECB comments on inflation and rate policy. If they signal patience or push back expectations for further cuts, that could help stabilize the euro

Key Levels

Support: 1.1600 - 1.1580 zone is short-term support, if this breaks, the next target is around 1.1460

Resistance: A move back above 1.1660 - 1.1670 could trigger a bounce, but a strong dollar would make this unlikely

EURUSD Bottom Line Is

The euro is under pressure, and unless the Fed changes its tone or trade talks improve, the situation is unlikely to change anytime soon. If you trade EURUSD, keep an eye on the 1.1600 support level, the ECB meeting, and upcoming US data. Any of these could trigger the next move.