EURUSD Slides Toward 1.1350 as US Dollar Strengthens Ahead of Key Economic Data Dump.
The EURUSD currency pair declined sharply on Wednesday, slipping to nearly 1.1355, as the US Dollar gained ground amid investor caution ahead of a critical US economic data release. This decline came despite a surprisingly strong showing from the Eurozone economy in the first quarter, which grew at a faster-than-expected 0.4% pace. The broader sentiment, however, overshadowed by fresh concerns surrounding softening inflation in the Euro area and a resurgence in US-China trade tensions.
US Dollar Gains as Market Awaits GDP, PCE, and Employment Data
The US Dollar Index (DXY) climbed to around 99.35 during European trading hours, bolstered by investor positioning ahead of a trifecta of high-impact US economic indicators. Scheduled for release later today are:
- Q1 Gross Domestic Product (GDP)
- March Personal Consumption Expenditures (PCE) Price Index
- April ADP Employment Change report
These data points expected to provide critical insights into the Federal Reserve’s monetary policy trajectory. Market participants are keen to assess whether the data align with the view that inflation is decelerating and the labor market is cooling both prerequisites for potential rate cuts by the Fed later in 2025.
Consensus estimates point to an annualized GDP growth rate of just 0.4% in Q1, a sharp decline from the 2.4% expansion recorded in Q4 2024. Meanwhile, the core PCE, the Fed’s preferred inflation gauge, anticipated to show continued disinflation, while ADP payrolls are forecasted to indicate moderate job growth.
Should the data reflect a slowdown, dovish expectations could rise, potentially capping the Greenback’s upside. However, in the immediate term, the Dollar has benefitted from a flight to safety, driven by both economic uncertainty and the reignition of geopolitical trade tensions.
Geopolitical Trade Tensions Flare Up Again
Compounding the Dollar’s strength is renewed anxiety over US-China trade relations. Earlier this week, US Treasury Secretary Scott Bessent reaffirmed a tough stance against Beijing, suggesting that China must initiate tariff rollbacks if the two economic giants are to de-escalate their ongoing trade dispute.
Bessent’s remarks followed China’s move to increase tariffs by 125% on American goods, retaliating against the 145% tariffs imposed by the Trump administration. While China announced a narrow list of tariff exemptions, analysts argue that these are likely targeted toward products that the country cannot easily substitute domestically—casting doubt on any genuine attempt at de-escalation.
This tit-for-tat tariff battle has reignited fears of a global trade slowdown, and according to ECB board member Piero Cipollone, the resulting uncertainty could drag Eurozone GDP down by 0.2 percentage points in 2025-2026. The indirect impact of this dispute continues to weigh on the Euro’s outlook, especially amid fragile domestic inflation dynamics.
Euro Pressured by Soft Inflation in Key Eurozone Economies
While the Eurozone economy surprised to the upside in Q1, reporting a 0.4% quarterly GDP increase, this positive momentum was undercut by weak inflation data across the bloc’s largest economies. Preliminary April CPI data from six German states, France, Italy, and Spain reflected a moderation in price pressures, raising the likelihood of an ECB rate cut in June.
- In Germany, inflation slowed in four of six reporting states, suggesting that the national figure—due later in the day—could also reflect disinflation.
- France’s EU-harmonized CPI rose by 0.8% YoY, higher than the forecast of 0.7% but slower than March’s 0.9% print.
- Italy’s inflation held steady at 2.1%.
- Spain’s CPI was unchanged from the previous month.
With inflation still trending below the ECB’s 2% target across the bloc, traders have almost fully priced in a 25-basis-point rate cut at the June ECB policy meeting. Comments from ECB officials, including Cipollone, suggest that further easing could follow if inflation continues to stagnate or if the global trade environment deteriorates.
EURUSD Ignores Strong GDP as Rate Cut Bets Dominate
The Euro’s muted reaction to better-than-expected GDP data underscores the dominance of monetary policy expectations in shaping forex sentiment. The preliminary Eurostat data showed a 0.4% QoQ growth rate, doubling the prior reading of 0.2% and beating consensus forecasts. On an annual basis, the economy expanded by 0.5%, also topping expectations.
However, this economic resilience was not enough to support the common currency as investors continue to focus on future inflation and interest rate paths rather than backward-looking data. With inflation soft and downside risks from global trade tensions mounting, the case for ECB rate cuts remains compelling, keeping the Euro under pressure.
Technical Outlook: EURUSD Approaches Key Support
From a technical perspective, EUR/USD has broken below 1.1370, a level that previously acted as support. The pair is now eyeing the next key support near 1.1330, followed by 1.1300, which represents a psychological barrier. On the upside, resistance lies near 1.1410 and then at the 50-day EMA around 1.1445.
Momentum indicators such as the Relative Strength Index (RSI) are turning bearish, suggesting that further downside could be on the cards unless the US data surprise dovishly.
What’s Next for EURUSD?
The direction of EURUSD in the near term will largely hinge on the US economic data releases later today. A weaker-than-expected GDP or cooling inflation figures could temper Fed rate hike expectations and weigh on the Dollar, offering some relief to the Euro. Conversely, any signs of economic resilience in the US could amplify the Greenback’s bullish momentum.
At the same time, ECB rate expectations and global trade developments will remain critical drivers. Until inflation in the Eurozone shows convincing signs of acceleration, the Euro is likely to remain vulnerable—particularly if the US economy defies slowdown fears.
EUR/USD Outlook: Key Takeaways
- EURUSD slipped to 1.1355 amid a stronger US Dollar and soft Eurozone inflation data.
- Eurozone Q1 GDP surprised to the upside, but the Euro remained weak as inflation trends dominate policy outlooks.
- US Q1 GDP, PCE inflation, and ADP Employment reports expected to drive near-term Dollar direction.
- US-China trade tensions are flaring up again, creating a risk-off sentiment that benefits the Greenback.
- Market pricing now implies a 25bps ECB rate cut in June, with potential for more if economic conditions worsen.
