Dollar’s selloff gathered pace in European trading, with EUR/USD breaking above the 1.17 mark and appearing ready to retest 1.1829 short-term top. Momentum in the pair reflects broad pressure on the greenback, though Fed rate expectations have shifted only modestly.
Markets now assign a 96.22% probability to a 25bps cut at the September FOMC, up slightly from 94.59% a week ago. Odds of a follow-up move to 3.75–4.00% stand at 63.77%, even slightly lower than last week’s 64.71%. This muted change suggests that neither US President Donald Trump’s political pressure nor Treasury Secretary Scott Bessent’s call for a 50bps cut have meaningfully shifted rate expectations.
Instead, Dollar weakness may be more closely tied to concerns over Fed’s institutional credibility. White House press secretary Karoline Leavitt confirmed Tuesday that Trump is “considering a lawsuit” against Fed Chair Jerome Powell. The president also attacked Powell on social media, blaming him for being “Too Late” in policy decisions and criticizing what he claimed was a USD 3B overspend on Fed building renovations.
The political rhetoric raises questions about perceived threats to the Fed’s independence, a factor that could be weighing on the currency even more than rate speculation. The potential legal action, while unprecedented, may be seen as part of a broader effort to influence monetary policy direction ahead of upcoming meetings.
Technically, EUR/USD’s rally from 1.1390 has resumed with a break above 1.1698. The next target is a retest of the 1.1829 resistance,. Decisive break there would resume the medium-term uptrend.
More importantly, the next leg higher would bring the pair to face a long-term resistance zone around 1.20. This includes the 38.2% retracement of the 1.6039 (2008 high) to 0.9534 (2022 low) at 1.2019. Sustained break would strengthen the case that the rise from 0.9534 is the start of a long-term uptrend reversing more than 14 years of prior decline.
ECB Vice President Luis de Guindos remarked in early July that an exchange rate of 1.17–1.20 is “perfectly acceptable” but suggested that moves beyond $1.20 could pose complications, particularly in terms of deflationary pressures. This makes 1.20 a critical line to watch — both technically and from a policy perspective — in the weeks ahead.
