EUR/USD Eyes 1.1650, French Political Risks Loom Over Euro

EUR/USD saw a modest uptick, reaching near 1.1650 as the US Dollar (USD) faced selling pressure. The pair’s advance is somewhat limited by political uncertainty in France, keeping the Euro (EUR) from gaining significant momentum.

US Dollar Weakens as Fed’s Williams Offers Cautious Outlook

The US Dollar index (DXY) dropped by 0.12% to around 98.00, driven by dovish comments from Federal Reserve Bank of New York President John Williams. Williams indicated the Fed is in no rush to act on interest rate cuts without seeing fresh economic data. While he expressed support for potential cuts, he maintained that the decision should be data-driven, adding that the risks were more balanced than previously thought.

The CME FedWatch tool suggests that there’s an 87% chance the Federal Reserve will cut interest rates during the September meeting, but Williams’ comments highlight that the central bank is still cautious about committing to a policy shift before evaluating upcoming data.

French Political Uncertainty Capping Euro’s Gains

Despite the US Dollar’s weakness, the Euro faces political headwinds from France. Prime Minister François Bayrou’s push for a confidence vote over his €44 billion budget package has raised concerns. Opposition parties are unlikely to support Bayrou’s motion, which could trigger a snap election and add to the uncertainty surrounding the French economy. This uncertainty has somewhat capped the upside potential of EUR/USD.

Upcoming Eurozone Data to Drive Momentum

Investors are now turning their attention to the upcoming preliminary inflation data for August from major Eurozone economies, set to be released on Friday. This data could give further direction to EUR/USD, especially if inflation prints come in stronger or weaker than expected.

In Summary:

• EUR/USD ticks higher to 1.1650 as the USD weakens on dovish Fed comments.
• Political instability in France, with a potential snap election, is limiting Euro gains.
• The US Dollar’s outlook remains uncertain ahead of key data releases and the Fed’s decision in September.

Traders will be watching the upcoming inflation data closely, as it could provide the next catalyst for movement in EUR/USD.

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