Euro holds early recovery against US Dollar, focus is on ECB policy

• The Euro holds the recovery move near 1.1450 against the US Dollar.
• The ECB and the Fed are expected to leave interest rates unchanged in the July meeting.
• Escalating Middle East tensions continue to weigh on market sentiment.

The Euro (EUR) holds its early recovery move at around 1.1450 against the US Dollar (USD) during the European trading session on Monday. The major currency pair rebounds as the US Dollar turns upside down amid firm expectations that the Federal Reserve (Fed) will keep interest rates steady in the July policy meeting.

At press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.1% lower to near 100.65.

According to the CME FedWatch tool, the odds of the Fed leaving interest rates unchanged in the July meeting are 85.6%, up from 65.8% recorded last week. Traders scaled back hawkish Fed expectations after the release of the softer-than-expected United States (US) Consumer Price Index (CPI) data for June.

Though the Euro trades higher against the US Dollar, the former is underperforming against its other peers amid escalating geopolitical tensions. US Central Command (CENTCOM) confirmed late Sunday that it had concluded a ninth straight night of strikes against Iran, clarifying that the latest aggression was in retaliation for the killing of at least three American service members.

This week, the major trigger for the Euro will be the European Central Bank’s (ECB) monetary policy announcement on Thursday. The central bank is expected to leave policy rates unchanged after raising them by 25 basis points (bps) in the June meeting. Investors will pay close attention to the ECB’s monetary policy statement and President Christine Lagarde’s speech to get fresh cues regarding the monetary policy outlook.