EUR/USD Targets 1.1625 as Fed Hike Bets Fall Below 50%

EUR/USD gains as Fed September hike odds fall below 50%. Societe Generale sees further euro upside toward 1.1610-1.1625 if the ECB hikes again.

The euro is gaining ground against the U.S. dollar as markets reassess the Federal Reserve’s interest-rate outlook following weaker U.S. employment data. Societe Generale strategists say EUR/USD has moved above an important resistance area, strengthening the case for further gains if the Fed pauses while the European Central Bank considers another rate increase.

The currency pair recently pushed through the 1.1475-1.1500 resistance zone, a move that marked an important shift in short-term market momentum. The dollar has faced additional pressure as traders reduced expectations for a September Federal Reserve rate hike.

Fed Repricing Boosts Euro Outlook

According to Societe Generale, expectations for a September Fed hike have dropped to below 50%, compared with 72% at the end of July. The sharp repricing reflects growing concerns about the U.S. labor market and has changed the outlook for both Treasury yields and foreign exchange markets.

For much of the year, investors focused heavily on above-target consumer inflation and whether the Federal Reserve was falling behind the curve. Softer employment conditions have now introduced a different consideration: whether the labor market is weakening enough to justify keeping monetary policy unchanged.

This shift has reduced support for the dollar because lower expectations for U.S. interest rates can narrow the yield advantage that previously favored dollar assets.

• September Fed hike odds: below 50%
• Late-July hike odds: 72%
• Key EUR/USD resistance: 1.1475-1.1500

EUR/USD Nears Its Next Resistance

Societe Generale considers EUR/USD close to fair value when measured against two-year interest-rate spreads. The bank also notes that the pair appears slightly expensive relative to natural-gas prices, suggesting that valuation signals across markets are not entirely aligned.

Despite those considerations, the broader monetary-policy setup could remain supportive for the euro. If the ECB delivers another rate increase while the Federal Reserve keeps rates unchanged because of a deteriorating U.S. labor market, the interest-rate gap could shift further in the euro’s favor.

The next important technical resistance area is seen around 1.1610 to 1.1625. A sustained move into that zone would strengthen the bullish outlook and give traders a new reference point for assessing the euro’s next move.

ECB-Fed Divergence Could Drive Gains

The key catalyst for EUR/USD may now be the contrast between monetary policy in the euro area and the United States. A Federal Reserve pause combined with another ECB hike would create a more favorable rate environment for the euro.

However, the outlook remains dependent on incoming economic data. Further deterioration in U.S. employment could reinforce expectations for a Fed pause, while stronger inflation or labor-market figures could revive rate-hike bets and provide the dollar with renewed support.

For now, the combination of weaker U.S. employment data, falling Fed hike expectations and a break above 1.1500 has improved the euro’s near-term prospects. Traders will watch whether EUR/USD can build on that breakout and challenge the 1.1610-1.1625 resistance zone.