The euro rose in European markets on Monday against a basket of global currencies, extending its rebound for a second straight day from a three-week low against the US dollar, supported by renewed buying at lower levels and a defensive turn in the greenback amid risks of a US government shutdown.

Following the latest European Central Bank (ECB) meeting, which included more hawkish commentary than markets had anticipated, the odds of further rate cuts in Europe by year-end have diminished. To solidify those expectations, investors are awaiting more evidence on the ECBs path toward monetary easing.

Price Overview

EUR/USD climbed about 0.25% to $1.1733, up from an opening at $1.1706, after touching a low of $1.1699.

On Friday, the euro gained 0.3% against the dollar, its first increase in three sessions, recovering from a three-week low of $1.1646.

Last week, the euro lost 0.4% versus the dollar, its first weekly decline in a month, pressured by mounting geopolitical tensions in Eastern Europe.

US Dollar

The dollar index fell 0.3% on Monday, extending losses for a second session and moving further away from a three-week high of 98.61, reflecting continued weakness of the greenback against major peers.

Beyond profit-taking, dollar levels are being weighed down by the looming risk of a US government shutdown if Congress fails to pass a funding bill before the fiscal year ends on Tuesday. Without passage, parts of the government will close on Wednesday, the first day of fiscal year 2026.

Ray Attrill, head of FX strategy at National Australia Bank, said: The prevailing assumption is that if the government shuts down, we wont get new US jobs data this week, which complicates trading in the markets.

European Interest Rates

Sources say ECB policymakers believe no further rate cuts are needed to achieve the 2% inflation target, despite new economic forecasts suggesting lower rates over the next two years.

Sources also noted that unless the eurozone faces another major economic shock, borrowing costs are expected to remain at current levels for some time.

Money market pricing currently reflects about a 10% chance of a 25-basis-point ECB rate cut in October.

Traders have scaled back bets on ECB easing, signaling the end of this years rate-cutting cycle.

To reprice expectations, investors are awaiting fresh European economic data and commentary from ECB officials in the coming period.