The EUR/USD pair has been actively declining during Friday’s Asian session, developing a downward trend for the fourth day in a row. Today, the euro is testing the support of 1.1650, which is the lowest level since early April, while the general fundamental background remains on the side of sellers of the main currency risk.
The strengthening of the dollar continues to put pressure on the euro against the background of a significant increase in inflation in the United States. The latest data showed that the consumer price index reached 3.8% year-on-year in April, while industrial inflation rose to 6%. Both indicators have updated their maximum since 2023. At the same time, the American consumer continues to actively spend money – retail sales have been growing for the third month in a row and increased by 0.6% in April. These statistics clearly indicate that the US economy remains stable even despite the consequences of the conflict in the Middle East, which means that the Federal Reserve System (FRS) has virtually no reason to rush to cut rates. Moreover, investors are increasingly assuming the opposite scenario – a new rate hike. According to the FedWatch Tool, the probability of a tightening of the Fed’s policy by the end of the year is already approaching 40%. Against this background, US bond yields are rising, providing additional support to the dollar.
Another factor in the decline of the European currency is the crisis in the energy market. After new statements by Donald Trump and the escalation of tensions around the Strait of Hormuz, oil prices went up again, as a result, the price of Brent again approached the level of $ 110 per barrel. This is a particularly sensitive issue for Europe, as the currency bloc’s economy remains one of the largest importers of energy resources. For the eurozone, any increase in oil prices directly increases pressure on European industry and consumers, the trade balance and the budget. At the same time, the European Central Bank (ECB) is in a much more difficult position than the Fed, given that the eurozone economy is already showing signs of an obvious slowdown and stagnation in the industrial sector. In such a situation, it is much more difficult for the ECB to aggressively tighten policy, since too high interest rates can increase the risks of recession. Thus, the contrast between the monetary policy of the Fed and the ECB creates favorable conditions for the continued growth of the EUR/USD pair.
