The EUR/USD pair has moved lower in recent sessions amid a sharp strengthening of the U.S. dollar. The main catalyst was the latest Federal Reserve minutes, which indicated that the U.S. central bank is prepared to maintain restrictive monetary policy for longer than previously expected. In addition, several FOMC members signaled that another rate hike remains possible if inflation stays elevated.
Against this backdrop, U.S. Treasury yields climbed to multi-month highs, boosting capital inflows into dollar-denominated assets.
Weak eurozone economy adds pressure on the euro
Fresh macroeconomic data from France delivered another blow to the euro. The May composite PMI unexpectedly dropped to 43.5 points — the lowest level in nearly six years — signaling a significant slowdown in business activity across the eurozone. Investors have become increasingly concerned about the region’s economic growth outlook, particularly amid elevated energy prices and rising production costs. Following the data release, EUR/USD declined toward the 1.1590 area, marking fresh weekly lows.
Diverging Fed and ECB policies remain the key driver
The market is currently focused on the widening interest rate differential between the United States and the eurozone. The Federal Reserve’s benchmark rate remains significantly higher than that of the ECB, while expectations for additional easing steps from the European regulator remain limited. At the same time, analysts acknowledge that rising oil prices and persistent inflationary pressure could force the ECB to adopt a more hawkish stance during the summer months, although this has not yet been enough to support a sustainable recovery in the euro. Most analysts currently estimate the near-term EUR/USD trading range between 1.1500 and 1.1800.
Outlook and key levels to watch
In the short term, the advantage still remains on the side of the U.S. dollar. If U.S. inflation continues to stay above the Fed’s target and Treasury yields remain elevated, pressure on EUR/USD is likely to persist, with downside risks toward the 1.1550–1.1500 zone. Meanwhile, markets remain highly focused on eurozone inflation data and ECB rhetoric.
Any signals of potential policy tightening — as highlighted in the article EUR/USD falls below 1.1600 as selling pressure persists — could temporarily stabilize the euro and push the pair back toward the 1.1700–1.1730 range.
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