EUR/USD slips below 1.1600 as Greenback holds firm despite Trump-Fed tensions

• EUR/USD drops below the 1.1600 psychological mark, down nearly 1.0% on the day.
• The US Dollar Index is holding firm above 98.50 but faces pressure from tensions between Trump and the Fed.
• Traders will eye the Eurozone confidence surveys and the ECB's Monetary Policy Meeting Accounts on Thursday.

The Euro (EUR) came under renewed pressure against the US Dollar (USD) on Wednesday as a stronger Greenback, soft German Consumer Confidence data, and escalating political tensions in France weighed on the single currency, with EUR/USD slipping below the key 1.1600 psychological mark.

At the time of writing, the EUR/USD pair is trading around 1.1590 during the American session, down nearly 1.0% on the day. Meanwhile, the US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, is edging higher and holding firm above the 98.50 level.

However, despite trading higher on the day, the US Dollar faces growing headwinds. Political tensions between President Donald Trump and Fed Governor Lisa Cook have sparked concerns over the Federal Reserve's (Fed) independence, adding a layer of uncertainty to the monetary policy outlook. Following Chair Jerome Powell's cautious remarks at Jackson Hole, markets are increasingly pricing in the possibility of a 25 bps rate cut in September, although upcoming inflation and labor market data will be key in shaping expectations.

On the Eurozone side, Germany's GfK Consumer Climate index for September dropped to -23.6, falling short of expectations of -21.5 and below the previous -21.7, marking the third consecutive monthly decline. The report revealed a sharp drop in income expectations, with concerns over job losses and weaker spending intentions amplifying fears about the Eurozone's fragile recovery. The data highlights the continued strain on household confidence in Europe's largest economy, further dampening demand for the common currency.

At the same time, political tensions in France are adding pressure on the Euro. Prime Minister François Bayrou has linked his €44 billion budget plan to a crucial confidence vote in parliament, scheduled for September 8. This has raised concerns that the government may fall or new elections be called, raising broader questions about political stability in the Eurozone's second-largest economy.

Looking ahead, Thursday's calendar will be closely watched, with the release of Eurozone confidence surveys and the ECB Monetary Policy Meeting Accounts, which may provide deeper insight into the Governing Council's latest policy debate on inflation and growth. On the US side, Weekly Jobless Claims will offer an early snapshot of labor market conditions, while Friday's Core PCE Price Index - the Fed's preferred inflation measure - will be the key event of the week.