The U.S. dollar is regaining strength across the board as markets reprice expectations around the Federal Reserve’s policy path. Despite earlier hopes for aggressive easing, recent U.S. data including stronger labor market prints and resilient core inflation are pushing back the timing and magnitude of Fed rate cuts.

This renewed USD momentum comes as the euro faces growing headwinds. Euro area data remains soft, particularly in Germany and France, where manufacturing and services PMIs continue to underwhelm. Meanwhile, the ECB appears increasingly constrained, with inflation easing faster than in the U.S. and growth risks skewed to the downside. Markets are still pricing in rate cuts by the ECB as early as June.

This growing divergence in economic performance and monetary policy outlooks is reinforcing downside pressure on EUR/USD. Real yield differentials are widening in favor of the dollar, and safe haven flows are also lending support to the greenback in an uncertain macro environment.

Technically, EUR/USD has broken below key support levels, with momentum favoring continuation lower.

Short EURUSD

May 02 2025