Euro Steady Ahead of U.S. Inflation and ECB Rate Call

Key Moments

EUR/USD trades almost unchanged around 1.1625 in early European dealings on Tuesday as markets adopt a wait-and-see stance.
U.S. data showed 162,000 jobs added in August with unemployment at 4.1%, prompting traders to price in nearly a 60% chance of a Fed hike this month.
The ECB is widely expected to raise its deposit rate to 2.50% on Thursday, with Deutsche Bank and Capital Economics highlighting the risk of further tightening.

Euro Holds Ground Ahead of Event-Heavy Week

EUR/USD is trading virtually flat near 1.1625 in early European hours on Tuesday, with market participants largely sidelined ahead of key U.S. inflation releases and the European Central Bank’s interest rate decision later this week. The pair is consolidating above the 1.1600 handle as investors weigh the potential impact of upcoming macroeconomic data and central bank actions.

Market focus is firmly on the ECB’s September policy meeting on Thursday, where policymakers are widely expected to lift benchmark rates again. This would mark the second rate increase this year, following the move in June and a subsequent pause in July, which allowed officials to monitor how the broader conflict environment was evolving.

U.S. Labor Strength Fuels Fed Hike Expectations

Recent U.S. labor market figures have contributed to a more hawkish repricing of Federal Reserve expectations. Data released last week showed that the U.S. economy generated 162,000 new jobs in August, compared with a consensus forecast of 56,000. The Unemployment Rate remained unchanged at 4.1% during the same period, indicating a still-tight labor backdrop.

In the wake of this stronger-than-anticipated Nonfarm Payrolls report, traders are now assigning nearly a 60% probability to an additional Federal Reserve rate hike this month. The trajectory of that pricing will likely hinge on the next round of U.S. inflation readings.

Attention is turning to the forthcoming U.S. Producer Price Index (PPI) and Consumer Price Index (CPI) data, which are expected to show a modest pickup in monthly price pressures in August, influenced by global energy dynamics. Any upside surprise in these inflation indicators could bolster the U.S. Dollar and weigh on EUR/USD, potentially reinforcing a stronger Greenback narrative in the near term.

ECB Policy Outlook: Markets Brace for Further Tightening

On the Euro side, investors are preparing for another rate increase from the ECB at its Thursday meeting. The central bank raised rates for the first time since 2023 at its June gathering in an effort to bring elevated prices under control, before opting to pause at the July meeting to assess how the conflict situation might unfold.

“The ECB governing council looks certain to raise its deposit rate from 2.25 percent to 2.5 percent,” said Andrew Kenningham, chief Europe economist at Capital Economics.

Deutsche Bank’s View on the ECB and Euro Area Outlook

Deutsche Bank has described the upcoming ECB decision as “the key event” for Eurozone markets this week. Its European economists “expect a 25bp rate increase, taking the deposit rate to 2.50%,” and anticipate that investors will scrutinize “any guidance regarding the likelihood of further tightening.”

The bank also notes that its economists “now expect an additional hike in December,” with detailed reasoning provided in their preview note. In addition, Deutsche Bank reports that it has upgraded its medium-term projections for the Euro Area, raising its 2026 and 2027 growth forecasts “by 0.3pp and 0.1pp to 0.8% and 1.2% respectively.”

Institution / Indicator	Detail
Capital Economics	Sees ECB deposit rate rising from 2.25% to 2.50%
Deutsche Bank (September decision)	Expects 25bp hike, deposit rate to 2.50%
Deutsche Bank (future policy)	Now anticipates an additional hike in December
Deutsche Bank (Euro Area growth)	2026 forecast lifted to 0.8%, 2027 to 1.2%

Technical Picture: Euro Maintains Constructive Bias Above Key Averages

From a technical perspective, EUR/USD is holding a mildly bullish tone on the daily chart. The pair is trading above both the 20-day Bollinger simple moving average and the 100-day moving average, indicating underlying demand on dips while still capped beneath resistance at the upper Bollinger band.

The 14-day Relative Strength Index is hovering in the mid-50s, pointing to positive, but not excessive, momentum. This configuration suggests room for further upside as long as the pair remains above nearby support defined by its moving averages.

On the upside, initial resistance lies around 1.1710 at the upper Bollinger band. A sustained break above that level would signal potential for a more robust bullish extension. On the downside, first support is located near the Bollinger midline at 1.1615. Additional, deeper support is seen at the 100-day moving average around 1.1560 and at the lower Bollinger band near 1.1525, which together create a layered cushion in the event of a corrective move lower.