On Friday (August 29), the EUR/USD pair edged down 0.09% in early Asian trading, currently trading around 1.1664, remaining above all short-term moving averages. The exchange rate closed up 0.38% on Thursday, as traders downplayed optimistic US GDP data and initial jobless claims figures, shifting focus to the internal turmoil within the Federal Reserve. The US Dollar Index fell 0.33% on Thursday, contributing to the rise in the euro. The clash between Trump and the Fed, combined with safe-haven flows into the euro, yen, and Swiss franc, continues to dampen the dollar's upward momentum. The approaching confidence vote in France poses hidden risks to euro stability; meanwhile, the European Central Bank (ECB) meeting minutes and economic sentiment data both highlight the fragility of the eurozone's economic outlook.
Europe faces political instability and economic downturn risks, with central bank's wait-and-see approach limiting the euro's upside
French Prime Minister Béroul has proposed a confidence vote following the rejection of the country's budget bill, significantly increasing the risk of his ouster. The EU economic agenda includes the ECB's previous meeting minutes, the August economic sentiment index, and the consumer confidence index for the same period.
The latest ECB meeting minutes indicate that the bank has adopted a "wait-and-see stance" and set a high bar for further interest rate cuts. The ECB Governing Council explicitly stated that due to "escalating global trade tensions," risks to the eurozone economy are tilted to the downside; it also emphasized that "there was an extensive discussion about the impact of uncertainty, with trade policy and geopolitical-related uncertainties remaining at exceptionally high levels."
US employment remains robust but policy博弈 dominates, suppressing the dollar index
The latest US GDP data and initial jobless claims both indicate a robust economic foundation, but traders remain focused on the博弈 between the Fed and the White House.
Against this backdrop, the dollar weakened for the third consecutive trading day, with safety-seeking traders increasing their holdings of euros, Swiss francs, and yen. US economic data showed that Q2 2025 GDP grew by 3.3% quarter-on-quarter, exceeding the preliminary estimate of 3.0% and market expectations of 3.1%, indicating faster-than-expected economic growth. For the week ending August 23, US initial jobless claims fell to 229,000, slightly below expectations of 230,000 and down from the previous week's 234,000.
However, it is worth noting that after downward revisions to nonfarm payroll data earlier this month, signals of a cooling labor market have emerged—the average monthly job growth over the past three months was only 35,000. Hiring in the US is slowing, but historically low initial jobless claims indicate that layoffs have not increased significantly, suggesting employers are "hoarding labor." On Thursday, the US Dollar Index, which tracks the dollar against six major currencies, fell 0.33% to 97.85.
Market expectations for a Fed rate cut at the September meeting continue to rise: PrimeMarketer's terminal rate probability tool shows that the probability of a 25-basis-point Fed rate cut, lowering the policy rate to the 4.00%-4.25% range, has climbed to 90%. In contrast, the probability of the ECB keeping rates unchanged is 94%, with only a 6% chance of a 25-basis-point cut.
Focus on US core PCE and inflation data from other countries
The key data in the US economic calendar on Friday is the Fed's preferred inflation gauge—the core Personal Consumption Expenditures (PCE) price index.
Several key inflation reports will also be released globally, including flash CPI data from major eurozone economies (including Germany, France, Italy, and Spain), as well as the Fed's preferred inflation gauge—the core PCE price index. The latter is particularly important because rising price pressures (and if confirmed by weak nonfarm payrolls and/or higher-than-expected CPI data next month) could prompt the Fed to keep policy unchanged at its next meeting.
Technical outlook: USD/EUR short-term target at 1.1700, presenting profit-taking opportunity
The USD/EUR is forming a large bullish flag pattern, with the upward trend unchanged. On Thursday, the exchange rate broke through the 10-, 20-, 30-, and 50-day moving averages intraday and climbed further, touching a three-day high near 1.1700.
The Relative Strength Index (RSI), which had previously moved into bearish territory, has rebounded into bullish territory, indicating that bulls currently dominate the market. If the pair closes above 1.1670 (the 50% retracement level of the August 25 bearish candle), it will further solidify the upward logic, with subsequent key resistance levels at the August 22 high of 1.1742, the psychological level of 1.1800, and the year-to-date high of 1.1829.
On the downside, if it breaks below the support of the 50-day simple moving average (SMA) at 1.1661, it will test the 20-day SMA at 1.1649, with further support at 1.1600, the breakout level of the August 1 morning star.
It is worth noting that the recent weakness of the dollar has led to overly rapid gains in the euro, but with downside risks in the European economy, there is short-term profit-taking pressure. If US PCE data exceeds expectations, prompting further euro gains, the rapid pace of appreciation could make it an excellent time to take profits on the euro.
