The rate of EUR to USD retraced higher yesterday after falling 3 cents lower since last week, but the upside momentum is weak indicating that the decline will continue. The European Central Bank has turned quite dovish, with president Lagarde and many ECB members beating on the rate cut drums due to a weak economy and falling inflation.

EUR/USD Chart Daily – 1.07 Will Likely Turn into Resistance Now

Fed Chairman Jerome Powell’s recent comments indicating a lack of confidence in achieving the FED’s inflation target have tempered hopes of rate cuts by the Federal Reserve. This sentiment may offer support to the US Dollar (USD) and limit gains in EUR/USD .

Conversely, there is growing speculation among investors that the European Central Bank (ECB) will cut interest rates in June. ECB policymaker Bostjan Vasle suggested that the deposit rate could be lowered to 3% by the end of the year. Interest rate differentials between the US and the Eurozone have been a key factor influencing the movement of the EUR/USD pair.

European Central Bank President Christine Lagarde Comments

• Growth in Europe is mediocre and significantly slower than in the US.
• Signs of recovery are becoming apparent in the euro area, although they are not as robust as in the US.
• Euro area inflation differs from that of the US, suggesting unique dynamics at play.
• The ECB closely monitors the exchange rate and acknowledges its potential impact on inflation.

Bostjan Vasle, the central bank governor of Slovenia and a European Central Bank policymaker, expressed his views during the Spring Meetings of the International Monetary Fund and World Bank. He mentioned:

• Optimism regarding inflation: Vasle indicated that if everything progresses as expected, the Eurozone should approach a 3% inflation rate by the end of the year.
• Concerns about geopolitical tensions: Despite the positive outlook for inflation, Vasle cautioned about “worrying developments in the Middle East,” suggesting that geopolitical tensions in the region could have implications for economic stability and outlook.

The escalating geopolitical tensions in the Middle East have bolstered the demand for the US dollar as a safe-haven asset. Consequently, the dollar has surged to levels against the euro not witnessed since November 2023. We see further appreciation in the dollar’s value, suggesting that the EUR/USD pair could potentially decline to 1.05 soon and even to parity.

EUR/USD Live Chart