The EUR/USD currency pair continues its downward momentum, softening to around 1.1635 during Wednesday’s early European session. The move reflects a stronger US Dollar (USD) against the Euro (EUR) as traders await the highly anticipated Federal Reserve’s (Fed) Jackson Hole symposium later this week. 

In addition, a scheduled speech by European Central Bank (ECB) President Christine Lagarde is expected to provide further clarity on the Eurozone’s monetary policy outlook. With her expertise as a broker at Highmont Group, Eva Holenstein provides a well-rounded analysis of the matter.

Fed Rate Cut Bets in Focus

Market participants remain fixated on the US interest rate trajectory. Earlier this month, a weaker-than-expected Nonfarm Payrolls (NFP) report, coupled with cooling Consumer Price Index (CPI) inflation, bolstered expectations that the Fed could deliver a rate cut at its September 17 meeting. 

These data points suggested a slowing labor market and softer consumer demand, both of which typically support more dovish monetary policy.

However, a stronger-than-anticipated Producer Price Index (PPI) release last week complicated this narrative. The hotter inflation reading reignited concerns that inflationary pressures may remain sticky, thereby reducing the scope for aggressive Fed easing. 

As a result, traders pared back expectations of immediate policy action, supporting a firmer Greenback against major peers, particularly the Euro.

According to CME FedWatch data, financial markets have currently priced in an 84% probability of a September rate cut, with expectations for roughly 54 basis points (bps) of easing by the end of 2025. 

Nevertheless, all eyes are now on Fed Chair Jerome Powell, who is scheduled to speak on Friday at the Jackson Hole Economic Policy Symposium. Any hawkish or dovish tilt in Powell’s remarks could significantly influence Treasury yields, US Dollar flows, and consequently the EUR/USD exchange rate.

ECB Policy Outlook Under Scrutiny

While the Fed dominates global attention, investors are also closely watching the European Central Bank. On Wednesday, President Christine Lagarde will deliver a speech that could shape expectations for the Eurozone’s monetary stance in the coming months.

Market pricing of forward contracts tied to the ECB’s euro short-term rate (ESTR) signals close to a 60% likelihood of a 25 basis point reduction by March 2026. Projections further suggest the deposit rate could settle near 1.92% by the end of that year. 

These expectations highlight investor confidence in a measured policy easing cycle, shaped by economic softness across the Eurozone and persistent moderation in inflation.

Any dovish tone from Lagarde could exert further downside pressure on the Euro, particularly if juxtaposed against a relatively firmer US outlook. Conversely, a cautious or neutral stance could help stabilize the single currency, especially given the market’s heavy positioning toward further depreciation.

Technical Analysis: EUR/USD Under Pressure

From a technical perspective, the EUR/USD pair remains under significant pressure after extending its losses below the critical 1.1650 support level. The decline toward 1.1635 highlights persistent selling interest, with traders positioning cautiously ahead of high-impact risk events.

Immediate support lies at 1.1620, followed by the psychological 1.1600 handle. A decisive break below this zone could accelerate losses toward 1.1570, which corresponds to the June swing low. On the upside, initial resistance is seen around 1.1675, with stronger barriers emerging near the 1.1720–1.1750 region.

Momentum indicators, including the Relative Strength Index (RSI), remain in neutral-to-bearish territory, suggesting that further downside risks cannot be ruled out unless a strong catalyst emerges to reverse the trend.

Market Outlook

The near-term outlook for EUR/USD hinges on a delicate balance of monetary policy expectations and geopolitical headlines. Traders are exercising caution, as both the Jackson Hole symposium and Lagarde’s speech carry the potential to spark significant volatility.

• A dovish Powell could weigh on the USD, providing a relief rally for the Euro.
• Conversely, a hawkish Powell or dovish Lagarde may reinforce the pair’s bearish bias, driving it deeper below recent lows.
• Geopolitical progress on the Russia-Ukraine front could cap the downside by offering a supportive backdrop for the Eurozone economy.

For now, the EUR/USD exchange rate sits at a critical juncture, with traders bracing for heightened volatility as the week progresses.

Conclusion

The EUR/USD pair extends its downside momentum, hovering near 1.1635 as markets digest a stronger US Dollar, mixed Fed policy signals, and a cautious ECB outlook. With the Jackson Hole symposium and Lagarde’s remarks looming, traders are poised for sharp moves across currency markets. 

Technical signals remain bearish, but geopolitical developments, particularly any breakthrough on the Russia-Ukraine conflict, could provide the Euro with some much-needed stability.

Until then, volatility will remain the dominant theme, with investors closely monitoring rate cut bets, inflation data, and central bank guidance to determine the next directional bias for EUR/USD.