July 2026

The Euro continues to face downward pressure, showing persistent short-term weakness. Selling momentum intensified following the Federal Reserve’s recent decision, which strengthened the USD and limited the Euro’s ability to stage a more durable recovery. Markets are now pricing in the likelihood of a more aggressive Fed stance in the near term rather than later in the year, a shift that is critical for both the euro and USD.

One of the main factors constraining the Euro’s performance against the USD is the interest rate differential between the two regions. The US currently maintains a benchmark rate near 3.75%, with expectations of a possible move toward 4%, while Europe’s reference rate remains around 2.4%. This gap is significant: as long as there are no clear signs of narrowing, dollar-denominated assets are likely to remain more attractive than euro-denominated ones, sustaining demand for the USD and limiting the Euro’s recovery prospects.

The Fed’s decision has reinforced short-term support for the USD. With expectations of tighter US monetary policy still in place and the rate differential remaining wide, the Euro is likely to struggle to regain consistent ground. Under these conditions, selling pressure on EURUSD may remain pronounced. The euro weakened after the ECB kept interest rates unchanged  as widely expected, while signalling that a hike in September is likely. 

June 2026

 

Since the onset of the war in Iran, the correlation between 2-year German yields — used as a proxy for ECB policy rate — and EURUSD has largely been negative. Usually, rate hikes such as the ECB’s move on 11 June would be expected to support the EUR. However, recent price action indicates that the market views higher rates as a drag on employment and broader economy, while offering little relief from the energy supply shock. In other words, expectations of tighter policy in the Eurozone have weighed on the euro rather than bolstering it. However, with the conflict now subsiding, the EUR may revert to its historical relationship and begin to benefit from higher interest rates once again. 

 

The euro has come under pressure as the Fed’s hawkish shift, weak European PMI data and Christine Lagarde’s dovish comments have widened the yield spread between US and German bonds, prompting capital outflows and weighing on EURUSD. Still, if the recent surge in US inflation proves short-lived, expectations for a Fed rate hike may ease, allowing the EURUSD pair to stabilize.

 

May 2026

 

EUR is currently gaining against USD trading around 1.1630 mark. This move stems from a combination of factors such as disappointing macroeconomic data from the US, hawkish signals from the European Central Bank (ECB) and new positive developments on the geopolitical front. ECB officials highlighted that they may be forced to keep interest rate at restrictive levels for a longer period. The divergence between a softer Fed and an inflation-wary ECB provided a strong impetus for the strengthening of EURUSD. 

 

April 2026

 

Eurozone economy depends a lot on imported energy. As a result, when the oil prices go up, inflation risk rises and economic growth slows down. This makes ECB have less room to adjust interest rates. If the supply shock continues, higher energy costs will make it harder for ECB to control inflation, which will make the EUR weaker versus USD. As a result, while the markets seem to continue to price in further tightening from European Central Bank, EURUSD can struggle to extend their gains.