The euro rose in European markets on Friday against a basket of major currencies, extending its recovery for a second consecutive session after hitting a two-month low versus the US dollar. The gains were driven by dip-buying at lower levels.

This rebound comes ahead of the release of key eurozone inflation data for July, which is expected to shed more light on whether the European Central Bank (ECB) will raise interest rates in September.

Despite the current uptick, the single European currency remains on track for its steepest weekly loss since 2022 due to strong opposition from France and Germany against the recent USEU trade agreement.

Price Overview

EUR/USD rose by 0.15% to $1.1429, up from the days opening price of $1.1412, after hitting an intraday low of $1.1405.

On Thursday, the euro gained 0.1% its first daily gain in six sessions recovering from a two-month low of $1.1400.

Over the month of July, the euro fell 3.2% against the dollar, marking its first monthly loss since December 2024. The decline was driven by profit-taking from the 4-year high at $1.1830, along with fears that the new USEU trade deal could spark an economic slowdown in the eurozone.

ECB Interest Rate Outlook

The ECB kept its key interest rates unchanged at 2.15% last week the lowest level since October 2022 following seven consecutive rate cuts.

The bank opted to pause its monetary easing cycle, awaiting more clarity on future USEU trade relations.

ECB President Christine Lagarde stated after the meeting: We are in a wait-and-see mode, and added that the eurozone economy has shown resilience despite global uncertainties.

According to Reuters sources, a clear majority of ECB members preferred to keep rates unchanged at the upcoming September meeting which would mark a second consecutive pause.

On Thursday, German inflation figures came in higher than expected for July, potentially signaling renewed inflationary pressures that could influence ECB policy.

Current money market pricing suggests less than a 30% chance of a 25 basis point rate cut by the ECB in September.

Eurozone Inflation Data

To reassess the policy outlook, investors are now awaiting Julys inflation figures, due at 10:00 GMT.

Market expectations are for headline annual CPI to slow to 1.9% in July from 2.0% in June, while core CPI is expected to remain steady at 2.3%.

Euro Outlook

At Economies.com, we expect that if todays inflation figures exceed market forecasts, the odds of a September rate cut by the ECB will fall further, potentially boosting euro exchange rates in the forex market.

Weekly Performance

So far this week, the euro is down approximately 2.65% against the US dollar, on track for its third weekly loss this month and the sharpest weekly drop since September 2022.

USEU Trade Agreement

At their meeting in Scotland on Sunday, US President Donald Trump and European Commission President Ursula von der Leyen announced a new trade deal that includes:

A 15% US tariff on European imports including cars, pharmaceuticals, and semiconductors starting August 1.

A selected group of US goods will be fully exempt from EU tariffs under a no quid pro quo framework, including aircraft parts, semiconductor tools, some generic drugs, chemicals, and strategic agricultural products.

Steel and aluminum tariffs will remain at 50% for now, with potential future replacement by a quota system.

The EU committed to investing up to $600 billion in the US economy during Trumps second term.

The EU also pledged to purchase $750 billion in US energy products including LNG and nuclear coal over the next three years.

Trump stated that the deal aims to reduce the US trade deficit with the EU, which reached $235.6 billion in 2024.

Von der Leyen described the agreement as bringing stability and predictability to both sides and emphasized the goal of rebalancing trade relations.

European Reactions

On Monday, France labeled the trade agreement a black day for Europe, accusing the EU of caving to Trump in an unbalanced deal.

German Chancellor Friedrich Merz warned that the tariffs would cause severe damage to the German economy.