The EUR/USD rose by 0.36%, ending the week nearly unchanged after President Trump delayed military action against Iran. Governor Waller supported a rate cut in July, which differs from a more cautious view seen in other reports. As the trade deal deadline between the EU and US approaches, uncertainties could limit potential gains. Despite a lower risk appetite, the Euro gained against the US Dollar as Trump opted for diplomacy. US trade policies, particularly those affecting chipmakers with Chinese operations, have hurt market sentiment. Meanwhile, Iran expressed that it is not open to negotiations while conflicts with Israel continue.

Fed Rate Talk and Market Effects

The Euro’s support increased from the Fed’s mixed views on rate cuts, particularly with the July meeting coming up. External issues like the EU-US trade agreement remain unresolved, causing concern as deadlines approach. Although the EU Consumer Confidence index missed expectations, it did not stop the EUR/USD from rising. This week, the Fed kept rates steady at 4.25%-4.50% and slightly adjusted its economic projections. Key data showed a stable labor market and a need to keep an eye on inflation trends. Even with some negative economic signs, the currency pair could be lifted by the ECB’s approach to monetary policy. Earlier movements showed the EUR/USD gained slightly, despite general market risk aversion. This was due to reduced geopolitical tensions from Washington, which eased market anxiety. Trump’s decision to avoid escalating tensions in the Middle East provided some relief, but pressures on global chipmakers, especially those affected by tight US-China trade policy, remained. This mix of calm and volatility makes the currency market very sensitive to external events. Waller’s call for a rate cut highlighted a divide among Federal Reserve members – something traders should pay close attention to in the future. His comments indicate a more aggressive stance from some Fed members, but there is no full consensus yet. Any surprising data on inflation or labor could change this internal dynamic. While rates are stable, this divergence makes near-term inflation signals, particularly CPI and PCE results, more significant. We need to monitor not just decisions, but also the tone and direction of discussions within the FOMC.

Steady Eurozone Inflation Outlook

Recent data from the eurozone has not been particularly impressive. However, despite another drop in the Consumer Confidence index, the Euro remained strong. This soft miss was likely already expected, and the ongoing inflation resilience in the eurozone supports the EUR/USD, especially if the ECB maintains its current tone. We know that future expectations often outweigh actual results, which seems true here. The Fed’s economic forecasts were only slightly adjusted, maintaining a baseline expectation of steady employment and gradually easing inflation. This suggests that markets should remain alert, particularly as mixed signals from Fed members show that incoming data will be crucial. Any changes in wage growth or services inflation will likely impact expectations for the July meeting. The EUR/USD trend seems mostly reactionary, heavily influenced by sentiment regarding trade discussions between Brussels and Washington. These talks are still ongoing, and without more concrete developments, the Euro may struggle to gain more ground. Anticipating tensions in negotiations is wise. Generally, we can expect FX movements to be stagnant if discussions slow or come to a halt. As we approach July’s policy decisions, focusing on policy differences and timing of rate expectations from both the eurozone and the US is important. This difference, now noted as the ECB and Fed appear to be moving in different directions, offers short-term spreads to watch. Uncertainty around forward guidance could lead to more volatility in rates-sensitive assets, increasing intraday price swings, especially around economic reports. The EUR’s upward momentum remains limited, especially with ongoing US strength backed by the Fed’s cautious stance. However, if signs of declining US growth become clearer, there could be downward pressure on the dollar if data sways more towards Waller’s perspective. Hence, sensitivity to the calendar remains high — Friday’s payrolls and any unexpected CPI changes should be considered more impactful than usual. In the coming weeks, it’s more crucial to focus on how single data points influence the overall policy narrative of each central bank. This broader context will guide responses across rates and FX forwards, especially as appetites for adjusted returns start to tighten. We need to be flexible and prioritize positioning around policy shifts rather than reacting to headlines. Create your live VT Markets account and start trading now.

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