The euro declined in the European market on Monday at the start of the weeks trading against a basket of global currencies, retreating from a three-week high against the US dollar, driven by profit-taking and correction activity.

Reports indicated that the European Central Bank is likely to keep interest rates unchanged next month, but discussions around further monetary easing and potential cuts may resume in the autumn if the eurozone economy weakens.

Price Overview

EUR/USD fell by 0.2% to 1.1694, down from the opening level of 1.1719, after hitting an intraday high of 1.1726.

The euro ended Fridays session up nearly 1.0% against the dollar, marking its biggest daily gain since August 1, and reaching a three-week high at 1.1743, following comments from Jerome Powell at Jackson Hole.

For the past week, the euro rose by 0.15% against the dollar, posting its third consecutive weekly gain.

US Dollar

The dollar index rose by 0.25% on Monday, beginning to recover from a three-week low of 97.56, reflecting renewed strength in the US currency against a basket of major currencies.

Beyond technical buying from lower levels, the dollar rebounded at the start of the week as markets await further evidence on the likelihood of a Federal Reserve rate cut in September.

According to data from the London Exchange, traders now price an 84% chance of a 25-basis-point rate cut in September, with cumulative cuts amounting to 53 basis points by year-end.

Fed Chair Jerome Powell stated at Jackson Hole on Friday that shifting risk balances may warrant policy adjustments, with current indicators showing rising downside risks to the labor market.

European Interest Rates

Five sources told Reuters that the European Central Bank is expected to keep rates unchanged next month, though discussions on further cuts could resume in the autumn if eurozone growth weakens.

ECB President Christine Lagarde said at Jackson Hole on Saturday that the tightening measures adopted in 2022 and 2023 did not trigger a recession or a sharp increase in unemployment, as was historically the case.

Money market pricing currently shows less than a 30% chance of a 25-basis-point ECB rate cut in September.

Investors will closely monitor upcoming eurozone economic data and remarks from ECB officials in the coming period to reassess these probabilities.