"EURUSD staged a recovery toward the 1.1820-1.1830 area after a notable corrective move, reflecting both technical adjustment pressure and shifts in macroeconomic expectations, particularly those related to the US dollar. From a fundamental perspective, the primary driver behind yesterday's rebound did not stem from any marked improvement in the Eurozone outlook, but rather from the relative weakness of the US dollar, as the DXY edged lower toward the 97 level."
"As the Fed continues to emphasize a data-dependent stance and refrains from making firm commitments to keeping rates elevated for an extended period-combined with the fact that US inflation is no longer accelerating as sharply as before and growth indicators are beginning to show signs of divergence-expectations that the Fed may need to adjust its policy stance over the medium term have gradually taken shape."
"The Eurozone economy remains in a slow-growth environment, particularly within the manufacturing and export sectors, while core inflation has yet to return sustainably to the 2% target. This forces the ECB to keep policy in a delicate balance, insufficiently hawkish to drive a strong appreciation in the euro, yet not clearly dovish enough to exert meaningful downward pressure on the currency."
EURUSD staged a recovery to the 1.1820-1.1830 area after a corrective move, driven primarily by relative US dollar weakness as the DXY eased toward 97. Market focus shifted toward Federal Reserve policy expectations following FOMC remarks, emphasizing a data-dependent approach and reduced commitment to prolonged elevated rates. Slower US inflation acceleration and diverging growth indicators have increased expectations that the Fed may adjust its stance over the medium term, lessening the dollar's yield advantage. The ECB remains cautious amid slow Eurozone growth and unreturned core inflation, keeping policy balanced and constraining a strong euro appreciation. Interest rate differentials and expectation changes remain primary FX drivers.
Read at London Business News | Londonlovesbusiness.com
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