The Euro (EUR) trimmed its daily losses against the US Dollar (USD) after Germany's preliminary second-quarter GDP data surpassed expectations, with quarter-on-quarter growth at 0.2% versus the 0.1% consensus and year-on-year growth accelerating to 0.9% from 0.4%, both above market forecasts [1]. Despite this positive economic surprise, the EUR/USD pair traded at 1.1450, below the day's peak of 1.1475, as risk aversion stemming from renewed US-Iran hostilities and rising oil prices weighed on the Euro [1]. The Federal Reserve's recent decision to leave interest rates unchanged, coupled with Chairman Kevin Warsh's lack of forward guidance, further contributed to market uncertainty and supported the Dollar [1].
ING analysts noted that EUR/USD experienced a modest bounce following the Fed press conference, but gains were capped by higher long-dated US yields and pressure on US growth stocks [2]. ING projects that the Fed will remain on hold in September and expects EUR/USD to end Q3 near 1.17, though in the near term, the pair is likely to trade within a 1.14–1.15 range, influenced by upcoming Eurozone GDP and inflation data [2]. The Eurozone's preliminary Q2 GDP, due later in the day, is anticipated to show 0.2% quarter-on-quarter growth, reversing the previous quarter's 0.2% decline, with year-on-year growth expected at 0.5% [1][2]. An uptick in July inflation and high oil prices are seen as factors that could keep short-dated euro rates supported [2].
On the US side, the Bureau of Economic Analysis is set to release its preliminary Q2 GDP estimate, with analysts expecting annualized growth of 2.1%, matching the previous quarter's pace [3]. The Atlanta Fed’s GDPNow model, as of July 27, forecasts a lower 1.6% expansion for Q2 [3]. The US GDP report, scheduled for 13:30 GMT on Thursday, is considered highly market-moving, especially as investors remain focused on Middle East developments and their impact on oil prices and inflation [3]. Alongside GDP, the release of the GDP Price Index and PCE inflation data will be closely watched for implications on the Fed's rate path and the US Dollar's direction [3].
Market sentiment remains cautious, with the US Dollar Index (DXY) trading in the upper end of its multi-month range above 101.00, supported by the 'exceptionalism' narrative for the US economy and ongoing geopolitical risks [3]. According to [1], the Euro's positive reaction to German GDP was offset by risk aversion and Dollar strength, while [2] highlights that the EUR/USD is likely to remain range-bound in the near term, awaiting further data.
CONCLUSION
Despite stronger-than-expected German GDP data, the Euro struggled to gain ground against the US Dollar due to heightened geopolitical tensions and a cautious market mood. Both the Euro and Dollar are poised for further moves as investors await key GDP and inflation releases from the Eurozone and US. Near-term trading is expected to remain data-driven and sensitive to developments in the Middle East.