EUR/USD dips as Fed rate cut bets fade and tariff deadline nears

• EUR/USD falls on hawkish Fed expectations and rising yields.
• The US Dollar rebounds as the safe-haven demand for the greenback increases ahead of the Wednesday tariff deadline.
• EUR/USD tests support as bullish momentum fades.

The Euro (EUR) is falling against the US Dollar (USD) at the start of the American session, with EUR/USD testing 1.7360 at the time of writing.

Euro pressured as US Dollar firms on hawkish Fed expectations and rising yields

The Euro's weakness on Monday is primarily driven by renewed strength in the US Dollar and a market repricing of interest rate expectations. According to the CME FedWatch tool, markets are pricing a 4.7% probability of a 25-basis-point rate cut in July, down from 20.7% last week. The probability of a rate cut in September is at 64.5%, down from 75.4% last week. This follows Thursday's better-than-expected US Nonfarm Payrolls (NFP) report last week.

As a key objective of US monetary policy, the strong figures have diminished the prospects that the Federal Reserve (Fed) will cut interest rates in the near term.

The yield differential between Europe and the US continues to favor the Dollar, further undermining the Euro's upside potential.

Safe-haven demand for the US Dollar rises ahead of Wednesday's tariff deadline

On the trade front, the US Treasury Secretary told CNBC on Monday that the Trump administration is expecting to announce additional trade deals before Wednesday.

Speaking at Morristown Airport on Sunday, US President Trump stated, "I think we will have most countries done by July 9, either a letter or a deal," referring to new tariffs that will be imposed on 12-15 countries. 

With letters outlining the charges due Monday and reciprocal tariffs expected to take effect by August 1, markets are bracing for heightened trade tensions, supporting the safe-haven demand for the US Dollar.

EUR/USD tests support as bullish momentum fades

EUR/USD price action has pulled back near the 10-day Simple Moving Average (SMA) at 1.1736, with psychological support seen near the 1.1700 level. A break below the nearby 23.6% Fibonacci retracement of the May-July rally at 1.1647 could deepen the correction toward the 20-day SMA at 1.1626. Despite the recent decline, the Relative Strength Index (RSI) remains elevated at 64, indicating that the broader uptrend remains intact, for now, despite fading bullish momentum.

EUR/USD daily chart

A EUR/USD recovery above 1.1800 would likely re-ignite bullish interest, setting the stage for a test of the recent cycle high above 1.1830. A sustained break above this resistance could open the door to the psychological 1.1900 level.