Euro hovers near multi-month high against weak dollar; bulls await breakout above 1.1700 ahead of PMI data

The euro attracted dip-buying during Friday's Asian session, trading around 1.16931, near the multi-month high set in the previous session. Broad dollar weakness provided support for the euro, with spot prices on track for strong weekly gains and extending the uptrend seen since the start of the month. Bulls are currently waiting for a decisive break above the 1.1700 level before establishing new positions.

**Weak dollar and improving eurozone data jointly support the pair**

The dollar has come under pressure recently, partly due to heightened concerns over uncertainty in U.S. trade policy, prompting investors to rotate into alternative currencies such as the euro. Reports show the euro has gained over 11% against the dollar since the start of the year, briefly touching a four-year high near 1.18. Meanwhile, eurozone economic data has shown signs of improvement, with the final July services PMI rising to a five-month high of 51.7 and the composite PMI expanding to 52.0, providing fundamental support for the euro.

**PMI data to be key near-term catalyst**

Market focus now shifts to upcoming PMI releases to gauge the relative strength of U.S. and eurozone economic outlooks. Further improvement in eurozone data alongside softness in U.S. figures could push the euro above the 1.1700 threshold. However, some analysts caution that further euro strength could prove counterproductive. Strategists at Crédit Agricole note that tariffs and import policies may have already weighed on eurozone exports, and excessive currency appreciation could further strain an already fragile economy.

**Inflation outlook and central bank policy path in focus**

European Central Bank officials are expected to hold rates steady at this week's meeting, but markets increasingly believe the bank could cut rates again in the second half of the year if the economic outlook deteriorates or if euro strength drags inflation expectations lower. The ECB projects average inflation of 1.6% next year, notably below the 2% target, partly due to the euro's appreciation lowering the cost of imported goods. While rate-cut expectations may cap the euro's upside, the near-term dollar weakness continues to dominate market sentiment.