The euro faced renewed pressure this week, slipping below the psychologically significant 1.1400 level against the U.S. dollar as strong American economic data bolstered the greenback’s upward momentum. The move reflects a broader trend of investors favoring dollar-denominated assets amid rising U.S. Treasury yields, resilient labor market performance, and dampened expectations for interest rate cuts by the Federal Reserve.
On Friday, the EUR/USD pair dropped to as low as 1.1375, its weakest point in over three weeks. This decline followed the release of the U.S. non-farm payrolls report, which showed the addition of 139,000 jobs in May and continued wage growth. These results reassured markets about the underlying strength of the U.S. economy and pushed the U.S. Dollar Index (DXY) up to 104.85.
💵 Dollar Strength Weighs on the Euro
Investors now anticipate that the Federal Reserve will delay any interest rate cuts until late 2025, or potentially into 2026, depending on inflationary pressures. The higher-for-longer rate environment in the U.S. is attracting more capital into U.S. bonds, stocks, and cash, putting significant downward pressure on the euro and other major currencies.
By contrast, the European Central Bank (ECB) is navigating a slower economy with weaker inflationary dynamics. While the ECB did cut interest rates in early Q2, further easing remains uncertain as it attempts to balance sluggish growth with modest inflation readings. ECB President Christine Lagarde stated last week that the bank is “data-dependent” and still assessing whether additional rate cuts are warranted.
This policy divergence is widening the interest rate differential between the U.S. and eurozone, further weakening the euro’s outlook. “The euro is in a vulnerable spot as the ECB is closer to easing than the Fed,” said Marco Lüders, FX strategist at DeutscheBank. “This divergence is likely to persist into Q3 unless U.S. inflation cools significantly.”
📉 European Economic Challenges
The eurozone continues to grapple with stagnant industrial production, weak business confidence, and lingering concerns over consumer spending. Germany, the bloc’s largest economy, has narrowly avoided a technical recession but is still dealing with high energy costs and weak exports, especially to China.
Recent PMI data showed manufacturing activity contracting for the eighth consecutive month, underscoring the fragility of the region’s recovery. The ECB’s cautious approach may not be enough to boost sentiment in the near term, especially with political uncertainty rising ahead of the EU parliamentary elections.
📈 Technical Outlook
From a technical analysis perspective, the breach of the 1.1400 support level is significant. Many analysts now see 1.1300 as the next major downside target for EUR/USD, with 1.1450 acting as near-term resistance. Momentum indicators suggest further downside risk unless the euro finds support from improved data or a broader dollar pullback.
However, any signs of cooling in U.S. inflation or dovish shifts in Fed language could slow or reverse the dollar’s rise, giving the euro room to recover. For now, sentiment remains tilted toward the dollar, with traders watching next week’s U.S. CPI and European retail sales data for direction.
🔚 Conclusion
With the U.S. economy showing resilience and the Fed holding steady, the euro faces an uphill battle. Until there’s a shift in macroeconomic trends or central bank policy, the dollar is likely to remain dominant — and the euro may continue its slide below key technical levels.
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