EURUSD Analysis Can the dollar continue to dominate

Is the dollar starting to dominate?

Several sessions have already passed since the latest Federal Reserve decision, and the probability outlook continues to lean toward a higher-rate scenario. According to the CME Group, for the July 29 decision, there is still a 65.8% probability that the rate will remain unchanged around the 3.75% level. However, the probability of a rate increase has also started to gain ground, now standing at 34.2%.

The main focus remains on September. For that meeting, the market is already assigning a probability close to 50% that the rate could rise toward the 4.00% area, while there is also a 17% probability of an even larger increase. This shows that markets are starting to adjust their expectations toward a more restrictive Fed over the coming months.

This scenario has been key in supporting the rate differential between the United States and Europe. The US 10-year Treasury yield remains near the 4.5% area, while European bond yields have registered recent declines and are now below 3.4%. This difference continues to make dollar-denominated assets more attractive, especially if the outlook for elevated rates in the United States remains in place.

This dynamic has favored the US dollar, as a more attractive bond market can support demand for USD-denominated assets. This can be seen in the behavior of the DXY, which measures the strength of the dollar and currently maintains a relevant upward slope, with moves above the 100-point area. The index’s recovery started gaining more strength after last week’s Federal Reserve announcement.

The Fed’s decision continues to have a meaningful impact on EUR/USD. As long as the US bond market remains attractive and the dollar holds its strength, the euro could struggle to recover ground consistently. Under this backdrop, selling pressure on the pair could remain relevant over the next few trading sessions.