The euro continues to trade with a restrained tone, with EUR/USD holding above 1.1600 while short-term price action remains driven by a combination of weak eurozone macro data, geopolitics, and overall dollar dynamics. Nevertheless, the bulls’ inability to break through the 1.1650–1.1660 resistance zone keeps the risk of a renewed decline in place.
Monetary backdrop
The ECB has kept its key rates unchanged: the deposit facility rate stands at 2.00%, the main refinancing rate at 2.15%, and the marginal lending facility at 2.40%. The next key meeting is scheduled for June 11, 2026, where markets will look for confirmation on whether the central bank is prepared to maintain a hawkish stance for longer than previously expected. Against this backdrop, the euro currently lacks a strong standalone bullish driver and remains highly sensitive to shifts in rate expectations and overall risk sentiment.
What is weighing on the euro
The main negative factor for the euro is the visible deterioration in eurozone business activity. The May flash PMI dropped to 47.5, while the services index fell to 46.4, signaling an accelerating slowdown. At the same time, inflationary pressure remains elevated due to rising energy prices, complicating the ECB’s balance between supporting growth and fighting inflation. Additional pressure comes from geopolitical risks, which continue to support demand for the US dollar as a safe-haven asset.
Dollar and the Fed
On the US side, the picture remains mixed. Weakness in some economic indicators and expectations of eventual Fed easing limit the dollar’s upside, but persistent inflation and growing market speculation about a potentially more hawkish policy stance continue to support USD. As a result, EUR/USD remains trapped in a range where the euro may find temporary support from bouts of dollar weakness but quickly lose momentum after strong US data releases. In other words, the euro currently depends more on whether the dollar weakens than on the strength of the eurozone economy itself.
Short-term outlook
The base-case scenario for the near term remains elevated volatility and consolidation in the 1.1600–1.1700 range, with heightened sensitivity to ECB rhetoric and geopolitical headlines. If the ECB confirms a more hawkish tone on June 11 and inflation in the eurozone remains elevated, the euro could attempt a move back toward 1.18 and above. However, if recession concerns intensify or the dollar gains fresh momentum from strong US economic data, EUR/USD is likely to come under renewed pressure, as previously noted in EUR/USD holds above 1.1600 as Iran developments support pair.
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