The euro traded in a narrow range against the dollar during Asian trading hours on Wednesday (August 5), currently hovering around 1.1535. The dollar weakened slightly ahead of the ADP employment data release, providing some upside for the euro. Expectations for a September rate hike by the European Central Bank remain strong, with the market already fully pricing in a 25-basis-point move.

ECB Rate Hike Expectations: Market Remains Firm

The euro's upward momentum stems from the European Central Bank's relatively clear policy path. According to TD Securities, market pricing remains aligned with its policy outlook. "Investors continue to fully price in a 25 basis point rate hike by the ECB in September, which remains TD Securities' baseline scenario." The firm believes that market expectations for the September meeting have not changed substantially, and the Eurozone interest rate market continues to maintain a hawkish bias. Although ECB Governing Council member Martin Kocher's remarks last week indicated that its monetary policy stance remains data-dependent, Kocher clearly stated that the central bank is committed to sustainably reducing inflation to its 2% target level. This statement reinforces the ECB's anti-inflation framework—even if specific decisions depend on data, the direction and policy commitment are clear, providing medium-term valuation support for the euro.

Data Observation: ADP and Federal Reserve Expectations

Later today, the US will release its July ADP private sector employment report, with the market widely expecting new jobs to fall to 70,000 from 98,000 in June. This data is crucial because Federal Reserve officials have stopped providing so-called "forward guidance," forcing the market to rely on economic data to infer policy direction. If the ADP data is significantly weaker than expected, it will further reinforce the market's assessment of a decline in Fed rate hike expectations, providing upward momentum for the euro. According to the CME FedWatch tool, the market is currently pricing in a 60% probability of a 25 basis point rate hike by the Fed in September, lower than before the July meeting. Therefore, the US dollar lacks the momentum for a significant strengthening.

Kohl's speech: Data dependence contains a hawkish undertone

European Central Bank (ECB) Governing Council member Kocher's remarks last week were noteworthy. He emphasized how geopolitical changes can rapidly alter energy prices and the inflation outlook, highlighting upside risks to eurozone prices—a statement that, despite its low rating, still leans towards a hawkish stance. Kocher pledged that the ECB Governing Council will make decisions in the autumn based on the latest data to sustainably guide eurozone inflation back to 2%. This statement reinforces the policy stance of being data-dependent but firmly anti-inflationary. For the euro, this combination of "acknowledging inflation risks + conditionally committing to the 2% target" implies that there will be no aggressive easing signals in the short term, but if energy-driven price pressures resurface in the autumn, the central bank's policy rhetoric will likely shift back towards a hawkish stance.

Summarize

The euro is currently trading around 1.1535 against the dollar, with market expectations of a September rate hike by the European Central Bank remaining firm—traders have fully priced in a 25-basis-point move—providing medium-term support for the euro. The US ADP employment data will be a short-term catalyst; weak data will strengthen selling pressure on the dollar, pushing the euro to test the 1.1558 resistance level; strong data could trigger a pullback to around 1.1500. Given the relatively clear policy path of the European Central Bank and the continued uncertainty surrounding the Federal Reserve's decisions, the euro/dollar pair is expected to maintain a slightly bullish, volatile pattern in the short term. (Euro/USD daily chart, source: FX678) At 14:17 Beijing time on August 5, the euro was trading at 1.1532/33 against the US dollar.