The EUR/USD pair remains relatively close to its local highs; however, upward momentum has noticeably slowed following stronger-than-expected U.S. inflation data. April CPI accelerated to 3.8% year-over-year, reinforcing expectations that the Federal Reserve will keep interest rates higher for longer.
Against this backdrop, the U.S. dollar has partially regained strength, while U.S. Treasury yields have moved higher.
Pressure on the dollar persists due to Fed expectations
Despite strong inflation, the market still believes that the U.S. economy is gradually cooling: consumer confidence is deteriorating, the labor market is slowing, and investors continue to expect a more dovish Fed policy in the second half of the year. This is currently limiting dollar strength and supporting the euro. Analysts from ING and Morgan Stanley note that the key driver for EUR/USD right now is not so much the eurozone economy, but rather expectations around U.S. rate cuts.
The euro is supported by the ECB’s cautious stance
The European Central Bank maintains a more restrained approach to policy easing. Inflation in the eurozone is gradually stabilizing near target levels, and the market is no longer expecting aggressive rate cuts from the ECB in the coming months. This helps the euro hold above key levels despite weak industrial data in Europe and risks of a slowdown in the German economy.
What’s next: key risks for EUR/USD
In the short term, the market remains highly sensitive to U.S. inflation data, geopolitics, and Fed rhetoric. Escalating tensions in the Middle East have already pushed oil prices above $100, increasing inflation risks and supporting demand for the dollar as a safe-haven asset. At the same time, the baseline scenario among most banks is a moderately stronger euro in the second half of 2026, if the Fed begins cutting rates before the ECB.
At the moment, the pair is under selling pressure, with a potential test of support in the 1.1680–1.1660 area, where moderate buying interest may still emerge. A break below this zone could lead to a decline toward 1.1620–1.1600. As mentioned in my previous article EUR/USD holds below 1.1800, correction risks arise, the inability of bulls to break the 1.1800 resistance has increased the likelihood of a correction.
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