Euro nears recent highs ahead of confidence vote and ECB

The euro traded above $1.17, holding close to its strongest level since late July, as broad dollar weakness and cautious positioning ahead of a packed week in global markets supported the common currency. The move reflects both softer U.S. economic data and investor reluctance to take large positions before a series of key political and policy events unfold in Europe.

In France, political uncertainty remains front and center. Prime Minister François Bayrou faces a critical confidence vote on Monday, which he is widely expected to lose. Such an outcome would likely force President Emmanuel Macron to appoint a fifth prime minister in less than two years, underscoring the fragility of his governing majority.

The turmoil comes at a delicate moment for France’s fiscal policy and reform agenda, and markets are already reflecting a higher risk premium on French government debt.

Later in the week, attention shifts to the European Central Bank, which meets on Thursday. While policymakers are expected to keep rates unchanged for a second consecutive meeting, traders will scrutinize the Governing Council’s messaging for hints on the policy outlook heading into the autumn.

The ECB continues to weigh the impact of lingering global trade uncertainty and the potential fallout from proposed U.S. tariffs on European goods. At the same time, inflation has remained on target for a third straight month, providing some reassurance that the disinflationary pressures of last year are easing. Any change in the ECB’s risk assessment could influence expectations for policy moves later this year.

Across the Atlantic, the focus turns to U.S. economic data. After last week’s weaker-than-expected labor market report reinforced the case for monetary easing, investors are now awaiting fresh inflation figures. The data will be crucial in shaping expectations ahead of the Federal Reserve’s September meeting. Markets have already priced in a rate cut, but with recent signs of cooling in both jobs and consumption, traders are increasingly considering the possibility of a larger-than-usual move should inflation soften further.