Euro Edges Lower Below 1.1700 as Fed Rate Hike Odds Diminish

In early Asian trading on Thursday, EUR/USD edged lower near 1.1680, giving back some of the gains from Wednesday's sharp rally. However, downside for the euro may be limited as the latest Federal Reserve meeting minutes and soft U.S. economic data continue to weigh on the dollar. Markets are closely monitoring the future policy paths of the U.S. and European central banks for fresh directional cues.

**Dollar Pressure Provides Support for Euro**

The continued cooling of Fed rate hike expectations is a key factor dragging on the dollar recently. According to the CME FedWatch Tool, market expectations for a Fed rate hike at the July meeting have fluctuated, contrasting with earlier hawkish bets. Meanwhile, weak U.S. economic data has further undermined the dollar's appeal. In this context, EUR/USD has been viewed by some institutions as slightly undervalued near 1.1570. Francesco Pesole, FX strategist at ING, noted that the bank's short-term fair value model places the euro's fair range at 1.1600-1.1650, suggesting some upside from previous levels.

**Mixed Bullish and Bearish Factors, Euro May Consolidate in Near Term**

Despite yield differentials supporting the euro, further upside faces resistance. On one hand, better-than-expected German ZEW economic data has injected fundamental confidence into the euro; on the other, cautious remarks from the European Central Bank's chief economist and potential dollar safe-haven demand from geopolitical tensions have capped the euro's gains. Market analysts suggest that EUR/USD may remain range-bound in the near term until the policy paths of the two major central banks become clearer. Bank of America expects the dollar to stay relatively strong until the peak of U.S.-eurozone growth divergence, limiting the euro's upside.

**Markets Await Central Bank Policy Signals**

Investors' attention is now turning to upcoming key central bank meetings. Market views suggest that unless Fed officials unexpectedly signal a clear dovish shift, the euro lacks catalysts to break through key resistance levels in the near term. If more Fed officials soften their hawkish stance, it could open further upside for the euro.