The euro increased by 13.8% against the US dollar in the first half of this year, achieving its strongest start since its inception. In the past three months, the euro climbed by 9% against the US dollar.
This rise is attributed more to the US dollar’s weakness, with the US dollar index losing 10.7% against various currencies in early 2023. The current upward trend for the euro has extended for eight consecutive days.
Impact of big beautiful bill
The ongoing discussion in the Senate about the Big Beautiful Bill could impact the US dollar’s trajectory. The Labour market data, including the JOLTS report and jobless claims, are anticipated over the next three days.
A potential interest rate cut in response to weak labour market data could further affect the US dollar. Conversely, a strong labour market may still weigh on the dollar if rate cuts are expected.
The outcome of upcoming economic data releases will provide insights into whether the US dollar can recover. The market’s perception of Federal Reserve actions will play a role in the dollar’s performance.
With the euro posting its sharpest rise since the early days of the currency, we’re not merely witnessing a strong run for the common currency, but rather a broader shift in how markets are treating the US dollar. While the euro itself has seen a sturdy upward push, it’s less about euro-area strength and more about traders reacting to what’s happening across the Atlantic. That becomes increasingly important when considering how these moves have come in tandem with the US dollar index falling over 10% earlier in the year.
This kind of shift in the dollar’s value makes short-term positioning more delicate. The recent 8-day stretch of gains for the euro should cause us to reassess how much further momentum can be sustained – especially in the absence of positive catalysts in the euro zone itself. It’s not just about what the euro is doing on its own, but about where the dollar sits now after a meaningful repricing.
Labour market dynamics
Attention is now turning to Washington, where the Senate is in the middle of a high-stakes negotiation over the Big Beautiful Bill. This bill, should it pass or stall, could alter spending expectations and, in turn, affect yields and inflation assumptions. That’s where dollar-linked carry traders are paying close attention. A surprise outcome there could ripple through rates expectations, which have already diverged from earlier projections over the course of recent weeks.
Then there’s the labour market. Data due over the next handful of sessions—most notably from the JOLTS survey and weekly jobless claims—should help clarify how much slack, if any, remains in US employment. Weak data could increase the probability of a rate reduction, which would again put downward pressure on the dollar. But even a robust report might not be enough to support the dollar if markets suspect the Federal Reserve is ready to ease regardless, possibly due to broader disinflationary signals elsewhere.
What we’re really seeing is that the dollar is caught between two forces: a cooling economy and the expectations about what the Fed is likely to do next. It’s not enough for economic indicators to show strength—instead, it’s whether participants believe those indicators matter to policymakers. If the market collectively believes that future rate cuts are already baked in, then strong data only have a short-lived effect.
For those of us actively monitoring short-duration foreign exchange volatility, the coming sessions could be especially turbulent. Option skews may offer fresh entry levels for those watching EUR/USD topside moves. But pricing in further euro strength, after a nearly 14% climb in six months, needs a clear conviction that monetary divergence will widen—either through unexpected dovishness from the Fed or a hawkish turn from the ECB that isn’t yet reflected in forward guidance.
We need to be rigorous in observing how this sentiment is changing at the margin. Directionality over the next two weeks could hinge more on changing expectations than actual policy action. Moves in rates futures will be important, as they often front-run shifts in positioning before the major currencies reflect them.
This underlines the importance of reading beyond the headline figures. Every jobless claim, every Fed comment, and each line in the legislation being debated may create small adjustments in rate differentials that add up over time. In current conditions, where positioning has already leaned heavily against the dollar, even marginal surprises could unlock a return of dollar strength—temporarily or otherwise.
While it’s tempting to extrapolate the recent trend forwards, we should be cautious. Momentum can fade quickly when fundamentals fail to confirm the price. So any new long euro positions need to be balanced against short-term catalysts that might disrupt the current moves.
For spreads and delta positioning, being nimble is key now. We need to think less about direction and more about reaction. The path ahead depends less on absolute levels than on how markets interpret policy intentions. The Fed’s guidance—or the lack of it—will help reshape those expectations soon enough.
