The euro rose in European trading on Monday, marking its third consecutive daily advance against the US dollar, supported by sustained pressure on the greenback amid strong expectations of a Federal Reserve rate cut later this month.

Investors are now awaiting Tuesdays release of key eurozone inflation data for August, which is expected to provide clearer signals on whether the European Central Bank will move ahead with a rate cut in September.

Price Overview

EUR/USD: The euro gained 0.25% to $1.1714, up from the opening level of $1.1685, after touching a session low of $1.1684.

On Friday, the euro closed just 0.1% higher against the dollar, extending its recovery from two-week lows, supported by stronger-than-expected inflation data in Germany, the eurozones largest economy.

For August, the euro advanced 2.4% versus the dollar, its seventh monthly gain in the past eight months, driven by diverging expectations between ECB and Fed policy.

US Dollar

The dollar index fell 0.2% on Monday, marking its fifth straight daily loss and hitting a two-week low at 97.66, reflecting continued weakness against a basket of major and minor peers.

Data released Friday showed US core personal consumption expenditures (PCE) rising 0.2% month-on-month in July, in line with expectations. This reinforced market conviction that the Fed will move forward with a widely anticipated rate cut at its September 1617 meeting. According to CMEs FedWatch Tool, markets are now pricing in an 87% chance of a 25-basis-point cut, up from 63% a month ago.

European Central Bank Outlook

Five sources told Reuters that the ECB is likely to keep rates unchanged in September, though discussions of additional cuts may resume in the autumn if eurozone growth falters.

ECB President Christine Lagarde recently noted in Jackson Hole that the tightening cycle of 20222023 did not trigger a recession or sharp unemployment spike as had historically occurred.

Market pricing currently shows less than a 30% probability of a 25-basis-point ECB rate cut in September.

Inflation data from Europe on Tuesday will be pivotal in reshaping market expectations.