Euro Sinks Below 1.07 Amid Weak Euro-Zone Data; USD and GBP Show Mixed Trends.

• EUR/USD Decline: The Euro to Dollar exchange rate drops below 1.07 due to weaker Euro-Zone data, with Nordea forecasting a further slide to 1.04 in the next three months.
• ECB and Fed Policies: Both the ECB and the Federal Reserve are expected to remain data-dependent, with the ECB likely to implement rate cuts in September and December.
• US Inflation Skepticism: Nordea doubts recent US inflation data will lead to favorable outcomes, predicting no Fed rate cut until December.
• Political and Economic Factors: The Euro’s vulnerability may lessen with diminishing French political concerns, but US political issues and reduced risk appetite are expected to support the dollar.
• Future Recovery: Nordea predicts the EUR/USD will recover to 1.10 by the end of 2025 as the Fed cuts rates and risk appetite rebounds.

EUR: The Euro to Dollar (EUR/USD) exchange rate has dropped below 1.07 following disappointing Euro-Zone data. Nordea forecasts that yield spreads will favor the dollar over the coming months, pushing EUR/USD down to 1.04 within three months. Both the Federal Reserve and the European Central Bank (ECB) are expected to base their policy decisions on upcoming data. For the ECB, Nordea anticipates additional rate cuts in September and December. Nordea remains skeptical about the recent US inflation data, suggesting it might not lead to more favorable outcomes. Consequently, the Federal Reserve will need significant persuasion before considering a rate cut, which Nordea does not foresee until December. Overall, yield trends are expected to weaken the Euro. Nordea also believes that while French political concerns might diminish quickly, US political factors, including potential trade tariff fears if Trump wins, will bolster the dollar. A decrease in risk appetite is also expected to support the dollar and weaken the Euro. However, Nordea predicts that EUR/USD will recover in 2025 as the Federal Reserve cuts rates and risk appetite rebounds, reaching 1.10 by the end of 2025.

USD: The US Dollar (USD) faces a lack of demand at the start of the new week after outperforming its rivals on Friday. Germany’s IFO business sentiment data will be the focus of the European economic docket on Monday, followed by the Chicago Fed National Activity Index and the Dallas Fed Manufacturing Business Index in the US. Investors will also be watching for comments from central bank officials. Positive PMI data from the US on Friday boosted the USD ahead of the weekend. The USD Index continued its weekly uptrend, hitting its highest level since early May near 106.00. In the European session on Monday, the USD Index remains in a consolidation phase above 105.50. Meanwhile, US stock index futures are mixed, and the benchmark 10-year US Treasury bond yield hovers around 4.25%.

GBP: The Pound Sterling (GBP) gains against the US Dollar (USD), trading around 1.2650 in Monday’s London session after a sharp sell-off last week. The GBP/USD pair rebounds as the rise in the US Dollar Index (DXY) stalls below the 106.00 resistance level. Despite this, the near-term outlook for the US Dollar has strengthened following the preliminary S&P Global Purchasing Managers Index (PMI) report for June, which showed unexpected growth in the manufacturing and service sectors. The Composite PMI rose to 51.7, against expectations of a decline to 51.0 from the previous 51.3. The report also improved the sentiment among Federal Reserve (Fed) policymakers, noting that “Selling price inflation has cooled again after a brief rise in May, reaching one of the lowest levels in the past four years. Historical comparisons indicate that this latest decline aligns the survey’s price gauge with the Fed’s 2% inflation target.”