The Euro to Dollar exchange rate ended July near 1.1530 after the post-Federal Reserve Dollar selloff carried the pair decisively above 1.1500.
EUR/USD gained just over 1% during July, recovering from a monthly low near 1.1354 and reaching a high around 1.1547. The pair remains 1.7% lower since the start of 2026, having traded between January’s peak at 1.2075 and a June low of 1.1325.
Danske Bank said “modestly stronger-than-expected Q2 GDP and July flash inflation data from the largest euro area economies supported EUR”, but stressed that domestic European data were not the main reason for the move.
Instead, the bank said “the main driver behind EUR/USD rising above 1.15 has been the post-FOMC decline in US real rates.”
Nominal US yields fell following the Federal Reserve meeting, while medium and longer-term inflation expectations moved higher. According to Danske, this reflected markets reassessing “Kevin Warsh’s commitment to bringing inflation back to target”.
That combination lowered inflation-adjusted US yields and weakened one of the central supports for the Dollar.
The effect was not confined to the Euro. Danske noted that “the same effect could be seen across other risk-sensitive currencies as well”, with easier financial conditions supporting the Swedish Krona, New Zealand Dollar and South African Rand.
For the bank, the market reaction directly challenges its recent positioning.
“The shift does challenge our recent USD-positive narrative,” Danske said, adding that this view had been “underpinned by expectation of the Fed remaining on a firm tightening bias.”
The bank is not abandoning the prospect of further US rate increases. It said: “We still think the macro case for the Fed hiking rates is very much alive.”
That remains the foundation of its medium-term case for renewed Dollar strength. Sticky inflation, resilient activity and the risk that the Fed ultimately tightens more than markets now expect could restore support to US yields.
The immediate risk, however, has moved in the opposite direction.
Danske conceded that “tactically, further decline in US real rates would certainly put our recent short EUR/USD recommendation under even more pressure.”
The technical backdrop has improved alongside the change in rates. EUR/USD has moved above both its 20-day and 50-day moving averages after spending much of July below them.
A sustained hold above 1.1500 would leave the recovery intact and bring the 1.1600-1.1665 region back into focus. The latter marked the upper part of June’s trading range before the Euro’s slide towards 1.1325.
The broader three-month trend remains less convincing. EUR/USD is still below May’s highs near 1.1800 and has fallen around 1.7% over that period.
Danske’s forecast therefore hinges on whether the post-Fed fall in real yields persists. A further decline would reinforce the Euro’s breakout and threaten the bank’s short position, while a recovery in real rates and renewed expectations of Federal Reserve tightening could pull EUR/USD back towards 1.1400.
Our currency coverage draws on live market data, official economic releases and published bank research.
