EUR/USD Weekly Forecast: US Rate Hike Back on the Table as US Dollar Strengthens
The EUR/USD pair has come under renewed pressure in the final full week of August, slipping below the 1.1600 area as the US Dollar stages a recovery. The pair's pullback follows a period of sustained Euro strength, with EUR/USD still trading well above its August low near 1.1350.
The main catalyst for the Dollar's latest advance has been a shift in expectations surrounding Federal Reserve policy. Federal Reserve Chair Kevin Warsh's Jackson Hole remarks placed renewed emphasis on inflation and price stability, prompting markets to reconsider the possibility of a US interest-rate hike as early as September.
Fed Rate Hike Expectations Return
Warsh said the Federal Reserve needs to be confident that underlying inflation is moving toward its 2% objective, while indicating that policymakers still have work to do if inflation does not improve sufficiently.
His comments triggered a sharp repricing in interest-rate expectations. Market pricing for a September rate hike increased significantly following the speech, providing fresh support for the US Dollar and Treasury yields.
The latest inflation data has also contributed to the shift. With US price pressures remaining above the Fed's target, traders are now paying closer attention to upcoming economic releases for confirmation of the central bank's next move.
EUR/USD Technical Outlook
EUR/USD has slipped below the 1.1600 level, which now represents an important near-term technical area.
A sustained break below 1.1600 could increase bearish pressure and expose the pair to the 1.1550 region. Further weakness could bring the August low around 1.1350 back into focus over the medium term.
On the upside, a recovery above 1.1650 could stabilize the pair and reopen the path toward 1.1700–1.1710, where recent highs have created an important resistance zone.
The pair's broader recovery structure remains intact as long as EUR/USD holds well above the August low, but the short-term momentum has shifted in favor of the US Dollar.
Euro Faces Additional Challenges
The Euro's upside is also being limited by a relatively moderate European economic recovery. German economic indicators have improved, but investment remains weak and the recovery continues to rely heavily on exports.
Meanwhile, interest-rate expectations remain a major driver of EUR/USD. A widening policy-rate advantage for the US would generally favor the Dollar, while signs of a more restrictive European Central Bank stance could provide support for the Euro.
What to Watch Next Week
The coming week will be important for EUR/USD as traders assess whether the Dollar's recovery can continue.
Key factors include:
- US inflation and economic data
- Federal Reserve rate expectations
- Eurozone inflation figures
- ECB policy expectations
- US Treasury yields
- EUR/USD reaction around 1.1600
The preliminary US employment benchmark revision is also being closely watched, as it could influence perceptions of the strength of the US labor market and the Fed's policy outlook.
EUR/USD Weekly Outlook
The short-term outlook has become more cautious for the Euro after the pair lost the 1.1600 area. Continued Dollar strength could keep EUR/USD under pressure, particularly if upcoming US data reinforces expectations for tighter Federal Reserve policy.
However, the broader EUR/USD recovery has not been completely invalidated. A move back above 1.1650 would improve the near-term picture, while a sustained break below 1.1600 would increase the risk of further losses.
For now, 1.1600 is the key pivot, with 1.1550 support and 1.1700–1.1710 resistance providing the main levels to watch.
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