Euro remains under pressure as dollar holds near four-week high

The euro remained under pressure against the U.S. dollar on Tuesday as investors continued to position for the possibility of another Federal Reserve interest-rate increase.

As of approximately 9:50 GMT time, the euro traded near $1.1370, rising by a marginal 0.05% during the session after struggling to recover from its recent losses.

The U.S. dollar index, which measures the greenback against a basket of six major currencies, held broadly unchanged near 101.50 after touching its highest level since July 1.

The euro’s limited rebound reflected continued demand for the dollar as investors reassessed the outlook for U.S. monetary policy.

Fed expectations support the dollar

Markets were pricing in an approximately 40% probability that the Federal Reserve would raise interest rates by 25 basis points at the conclusion of its meeting on Wednesday, compared with roughly 20% one week earlier.

Traders were also assigning a nearly 95% probability to at least one rate increase by September.

Higher U.S. interest-rate expectations generally support the dollar by increasing the returns available on dollar-denominated assets, making it more difficult for the euro to stage a sustained recovery.

U.S. Treasury yields have also remained close to multi-month highs, providing additional support for the greenback.

Falling oil offers limited euro support

Oil prices continued to decline after the United States paused attacks on Iran over the weekend, reducing some of the inflation concerns that had previously strengthened expectations of tighter Federal Reserve policy.

However, the decline in energy prices was not enough to generate a meaningful euro recovery.

The currency remained close to recent lows as investors waited for clearer guidance from the Federal Reserve and upcoming U.S. economic data, including second-quarter gross domestic product and the core personal consumption expenditures inflation index.

Euro outlook remains tied to Fed decision

The euro’s next major move will likely depend on the tone of the Federal Reserve’s policy statement.

An unexpected rate increase, or signals that another increase is likely in September, could push the euro below the $1.1350 level and strengthen the dollar further.

In contrast, a decision to leave rates unchanged accompanied by a more cautious message could trigger a reversal in crowded dollar positions and allow the euro to recover toward $1.1400.

For now, the euro remains relatively stable at around $1.1370, but its modest 0.05% gain highlights the difficulty it faces while U.S. rate expectations and elevated Treasury yields continue to favor the dollar.