EURUSD Climbs Toward 1.1250 as Dollar Loses Ground
The EURUSD pair extended its upward momentum on Wednesday, edging closer to the 1.1250 level during the European session. This continuation of Tuesday’s rebound has been primarily fueled by the weakening US Dollar (USD), which has come under pressure following disappointing US inflation data and fresh political criticism from President Donald Trump toward the Federal Reserve.
The US Dollar Index (DXY), which measures the USD against a basket of six major currencies, retreated further from its recent monthly high of 102.00, dropping to around 100.50. This downward correction signals that the dollar’s recent bullish trend may be waning as economic and political factors converge.
Soft US CPI Sparks Rate Cut Chatter
The April Consumer Price Index (CPI) data released on Tuesday revealed a significant moderation in inflationary pressures. Headline CPI rose just 2.3% year-on-year, marking the lowest increase in over four years. The core CPI, excluding food and energy, also slowed, suggesting that price pressures across the economy are easing.
This data has strengthened calls for a dovish shift in the Federal Reserve’s monetary policy, although market expectations for immediate action remain tempered. According to the CME FedWatch Tool, the likelihood of the Fed maintaining its benchmark interest rate at 4.25%-4.50% in July has dropped slightly to 63.3%, down from 65.1% the previous day.
Trump Targets Powell Again
Amplifying the market reaction to the CPI data, President Trump launched another scathing attack on Fed Chair Jerome Powell, expressing frustration over the central bank’s reluctance to cut interest rates. In a Truth Social post, Trump wrote:
“No Inflation, and Prices of Gasoline, Energy, Groceries, and practically everything else, are DOWN!!! THE FED must lower the RATE, like Europe and China have done… What is wrong with Too Late Powell? Not fair to America, which is ready to blossom? Just let it all happen, it will be a beautiful thing!”
This political pressure, while not new, adds to the speculative narrative that the Fed could eventually cave to mounting economic and political pressures, especially if inflation remains subdued and growth softens.
Trade Truce Cushions USD Weakness
Despite the soft inflation data and political pressure, expectations of a Fed rate cut remain modest, largely because of a temporary trade truce reached between the United States and China earlier in the week. The agreement, which included mutual tariff reductions of 115 percentage points, has temporarily calmed markets and bolstered hopes for a resilient US economic recovery.
This development appears to have mitigated the bearish impact of the CPI data on the US Dollar, as improved trade relations typically boost business confidence and reduce recession risks. However, the broader trend still points toward a softer dollar, especially if upcoming data continue to reflect disinflationary trends.
EUR Gains Despite ECB Dovishness
Interestingly, the Euro (EUR) has been performing strongly, not just against the USD but also against other major peers — with the exception of the Japanese Yen (JPY) — even as the European Central Bank (ECB) continues to signal further monetary easing.
ECB Governing Council member and Bank of France Governor Francois Villeroy de Galhau stated this week that he remains “hopeful for another rate cut before the summer ends”, citing low inflation expectations in the Eurozone. Speaking to Reuters, he commented:
“We don’t see inflation picking up. The Trump administration’s protectionism will lead to a restart of inflation in the US, but not in Europe, which will likely allow for another rate cut by the summer.”
Villeroy’s remarks echo recent dovish tones from other ECB officials, which typically weigh on the Euro. Yet, the common currency has remained resilient, suggesting that dollar weakness is currently the dominant driver in the EUR/USD dynamic.
Investor Sentiment Hinges on Trade Talks with EU
Market participants are also closely watching the progress of US-EU trade negotiations, which have remained largely silent in recent weeks. The absence of comments from the White House has raised concerns about sluggish efforts from the European Commission to resolve trade differences.
Any meaningful breakthrough in EU-US trade talks could provide additional support for the Euro, especially if accompanied by positive rhetoric from either side. Conversely, signs of rising tensions or fresh tariffs could dampen sentiment and weigh on the EUR/USD.
Upcoming Fed Speech and Data to Drive Momentum
Looking ahead, the most important catalyst for EUR/USD this week will be Fed Chair Jerome Powell’s speech at the Thomas Laubach Research Conference in Washington on Thursday. Markets will listen closely for any changes in Powell’s tone regarding rate path expectations, especially in light of this week’s soft inflation report and the temporary US-China trade détente.
In addition to Powell’s remarks, markets are awaiting the release of US Retail Sales and Producer Price Index (PPI) data for April. These figures will offer further insight into the consumer demand landscape and input price pressures, both of which are crucial in shaping the Fed’s inflation outlook and rate decisions.
Technical Outlook: EURUSD Eyes 1.1280
From a technical standpoint, the EURUSD pair faces its next key resistance at the 1.1280 level, a threshold that, if breached, could open the door to further gains toward 1.1320 and 1.1350. The Relative Strength Index (RSI) on the daily chart remains bullish, and the pair is trading above the 20-day and 50-day moving averages, suggesting sustained upside momentum.
Immediate support lies near 1.1190, followed by stronger buying interest around 1.1130, which aligns with the 50-day moving average. A break below this level could signal a short-term reversal and pull the pair back toward the psychological 1.1100 mark.
Conclusion: Dollar Faces Crosswinds, Euro Finds Traction
The EURUSD pair continues to rally on the back of a broad-based US Dollar retreat, driven by soft inflation data, renewed political pressure on the Fed, and a temporary easing in trade tensions. Despite dovish signals from the ECB, the Euro is finding strength, thanks to a combination of technical momentum and a weakening Greenback.
With key US economic data and Powell’s speech ahead, volatility could rise in the coming sessions. However, the bias remains tilted to the upside for EURUSD, especially if upcoming data confirm a disinflationary trend and if Powell signals openness to rate adjustments later in the year.
