Insights 
VT 
EUR/USD has been on a seven-day winning streak, reaching 1.1754, its highest since September 2021. The US Dollar struggles due to President Trump’s comments, geopolitical tension easing, and mixed US economic data, which increase expectations for a Federal Reserve interest rate cut.
The currency pair is currently trading at around 1.1726, slightly up by 0.20%. The US Dollar Index remains stable above 97.00, despite the core Personal Consumption Expenditure inflation figures being higher than expected.
Inflation Challenges
The headline PCE price index increased by 0.1% in May. Meanwhile, the core PCE index rose by 0.2%, with an annual acceleration to 2.7% from 2.6%, highlighting ongoing inflation issues.
Even with rising inflation, the US economy contracted by 0.5% in Q1 2025, the first decline in three years, signalling weaker consumer spending and personal income. Political pressures on the Fed to ease policy have grown.
The ECB’s Klaas Knot suggested no urgency for rate cuts, even with inflation risks being two-sided. Market projections for the ECB include one 25 basis point rate cut over the next year. Traders will monitor upcoming Eurozone inflation and US PMI data for further insights.
The EUR/USD pair has staged an extended move higher over the past week, reaching levels last seen in the autumn of 2021. We’ve been watching this with a keen eye. The uptrend appears to be largely fuelled not by strength in the Eurozone, but by softness in the US Dollar. With a sequence of mixed economic indicators and political messaging coming out of Washington, market participants have been recalibrating expectations for US interest rates.
The Dollar Index, which has held above 97.00, is doing so despite a larger-than-expected rise in the Federal Reserve’s preferred inflation metric—the core PCE. It came in at 2.7% year-over-year, which isn’t negligible. And month-on-month figures have also edged higher. Normally, that would spark at least a modest bid for the Dollar, but the data is working against a recent contraction in US GDP. That 0.5% fall in Q1, the first decline in three years, is rubbing up against the inflation narrative and raising questions about policy direction.
Market Movements
We’ve noticed that economic contraction, even if marginal for now, combined with shaky consumer spending and drop-offs in personal income, casts long shadows over the economy. More pressingly, it elevates pressure on the Federal Reserve. There’s been a loud undertone, particularly from political figures, urging monetary easing. Traders who follow rates futures have increased bets on rate cuts within the next two quarters.
At the same time, over in Europe, the European Central Bank is projecting a more measured tone. Knot’s recent comments made it clear that he doesn’t see a pressing case for initiating a rate cut cycle. His view underlines the ECB’s current position—that both inflation and deflation risks are present, and therefore policy should not be reactive but well-paced.
It’s that divergence in economic trajectories and approach to inflation that’s currently propping up the Euro. Market participants have taken note: rate markets are pricing in possibly one move lower by the ECB, and even that remains conditional. The stabilisation effort in European consumer prices, alongside an absence of urgency by policymakers, supports the common currency—at least for now.
Upcoming data points are likely to keep volatility elevated. PMI releases from both sides of the Atlantic and fresh Eurozone inflation impressions will provide the next wave of directional momentum. Price action around 1.1750 will be particularly important. That level marked resistance this week, and whether or not it holds or breaks could offer the earliest indication of a continuation versus a pullback.
Watching positioning in USD risk reversals and options open interest can also offer timely clues. If we start to see skew shifting even modestly into neutral territory, it may call into question the sustainability of the recent breakout. On the other hand, if premium builds further in favour of Euro upside, it could suggest stronger expectations of policy divergence—including a Fed-led easing cycle.
At this stage, we’re not just observing reactions to data releases, but also the tone and structure of incoming central bank communication, especially considering political interference. The dissonance between inflation and growth readings means rate expectations could remain fluid, keeping short-term positioning across options and futures somewhat unstable. That’s where the focus should remain in the next few weeks.
