The EUR/USD pair remains under pressure at the end of May, finishing the past trading week near the 1.1600 level after failing to sustain a move above 1.17 earlier this month. The main driver has been rising expectations of a more hawkish Federal Reserve policy amid persistent inflation in the United States and a surge in US Treasury yields.
The yield on 10-year Treasuries has approached levels last seen in 2007, increasing the attractiveness of the US dollar for global investors.
Fed and ECB diverge again on rate paths
Markets are increasingly pricing in a scenario where the Federal Reserve keeps rates higher for longer, while the eurozone economy continues to slow. Weak PMI data in Europe and cautious ECB rhetoric have added pressure on the euro. Analysts note that the current rate differential between the Fed and the ECB remains one of the key factors supporting the dollar, despite longer-term forecasts of gradual USD weakening.
Geopolitics and oil boost demand for USD
Geopolitical tensions in the Middle East remain an additional factor strengthening the dollar. Markets continue to favor safe-haven assets, while rising oil prices increase inflation risks for Europe, which is highly sensitive to energy costs. Against this backdrop, the dollar receives dual support — from safe-haven demand and expectations of tighter Fed policy.
What’s next for EUR/USD
After declining toward the 1.1600 level and failing to break below it, the pair rebounded toward resistance at 1.1640, supported by statements about a potential deal between the US and Iran. However, as long as US macroeconomic data remains strong and Treasury yields stay elevated, the upside potential for the euro appears limited, and the current rebound may still be used as a selling opportunity. A break above resistance could lead to a move toward 1.1680–1.1700, where selling pressure may also emerge.
In the near term, the pair’s dynamics will continue to depend on incoming news from the Middle East, as previously noted in EUR/USD loses momentum.
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