EUR/USD Update: Euro Gains Ground on Policy Divergence and Reduced Geopolitical Risks

Quick overview

EUR/USD climbs on May 25 2026 thanks to monetary policy differences between the European Central Bank and the Federal Reserve. Whereas the ECB remains a bit more dovish in the context of slower growth prospects in the Eurozone area as well as more tempered inflation, the Fed under Chair Kevin Warsh is viewed as more cautious following hotter-than-expected April inflation data.

The conditional ceasefire between the US and Iran remains in effect for more than seven weeks with the gradual resumption of tanker traffic through the Strait of Hormuz. This calms fears around energy price risks and removes the safe haven demand for the greenback, both of which provide support for the euro.

What is influencing the price action at EUR/USD?

1. Policy Divergence: The ECB is perceived as a little more willing to cut rates in order to support growth as the Fed remains more on hold given the sticky inflation.
2. Economic Data: This week will be an important test to measure Eurozone PMIs and German consumer and business sentiment to see how resilient the economy is.
3. US Data Release: This week’s US retail sales numbers plus the comments from numerous Fed officials will tell us how the US economy is doing as well as what the Fed is likely to do.
4. Geopolitical & Trade Issues: Any updates on the U.S.-Iran ceasefire or outcomes from the Trump-Xi summit could influence broader risk sentiment and dollar demand.

What else to note at EUR/USD?

1. US Retail Sales: A strong data report will be good for the dollar and the weak one for the euro.
2. Central Bank Comments: This week’s speech from the Fed plus the European Central Bank officials should inform us about how large the policy gap will grow.
3. Risk Sentiment: A change in investor appetite and an escalation of the geopolitical risk will push the safe haven trades back into the greenback.

EUR/USD Summary

At this stage the dollar seems a victim of the ECB’s dovish outlook and the reduced fear of the geopolitical events in the Middle East. It is still likely to be the main US data releases as well as the comments from the Fed that will determine the price trend over the coming week but in the context of this week’s events the prospects of the euro looks relatively positive.

Traders should be wary of a possible price spike around the US data releases and Fed speech as well as ECB members this week which could determine the future trend of the pair until the end of May.

ABOUT THE AUTHOR See More

Arslan Butt

Lead Markets Analyst – Multi-Asset (FX, Commodities, Crypto)

Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics. His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker. His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.

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