EUR/USD Nears 1.0600 as Fed-ECB Divergence Widens

USD Index image

EUR/USD is trading near a five-month low close to the 1.0600 support level during Tuesday’s European session. The pair faces increased downside pressure as markets anticipate a widening divergence between the Federal Reserve (Fed) and European Central Bank (ECB) monetary policies.

Factors Driving EUR Weakness

  • Growing expectations for an ECB rate cut cycle beginning in June. A weak Eurozone economy and eight consecutive months of cooling core inflation make a rate cut pivot more likely.
  • Recent comments from ECB President Christine Lagarde suggest rate cuts are possible if inflation data supports a sustained return towards the 2% target.
  • Diminished expectations for near-term Fed rate cuts. Persistent US inflation strengthens the case for maintaining restrictive interest rates. Traders currently anticipate Fed rate cuts starting in September.

Outlook: Focus on Fed, ECB Sentiment

Upcoming speeches by Fed policymakers will be closely watched for further guidance on rate cut timing. Fed officials have consistently advocated for keeping interest rates high until inflation is convincingly on a downward trajectory.


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