EUR/USD has slipped below a year-long 1.1400–1.1800 band and touched 1.1361, as markets weigh a widening gap between European Central Bank and Federal Reserve policy expectations. Softer euro-zone growth signals and falling energy prices have reduced the urgency for further ECB tightening, while the Fed is still priced for multiple rate increases.
The ECB is still expected to deliver one final rate rise in September, but the balance of risks has shifted towards fewer hikes. Policymakers continue to frame decisions around inflation dynamics, maintaining a medium-term focus on a 2% target. The near-term bias for EUR/USD remains lower if policy expectations keep diverging, though the move could fade should the Fed fail to deliver the rate hikes currently implied.
New Lows And Bearish Signals In EUR/USD
We’ve seen the US dollar’s strength push EUR/USD down to a new low of 1.0450 this week. The pair has finally broken out of the 1.0500 to 1.0900 range that held for most of the past year. This move gives a clear bearish signal for the near term.
Weaker growth in the euro area, with GDP forecasts for the year revised down to just 0.7%, is a key factor. With headline inflation now at 1.9% and well below the US, there is less pressure on the ECB to hold rates high. This supports the market view that another rate cut is likely by the end of summer.
Diverging Central Bank Policies And Trading Strategy
In contrast, the US economy shows persistent strength, with the latest jobs report adding over 250,000 new roles. Core inflation remains sticky at 2.8%, which is keeping the Federal Reserve on a cautious path. We see the market now pricing less than a 50% chance of a Fed rate cut this year.
For traders, this growing policy gap suggests positioning for a continued slide in EUR/USD. Buying put options on the euro provides a direct way to profit from a downward move while capping potential losses. We believe targeting levels around 1.0300 in the coming months is a reasonable strategy.
The divergence in policy between the ECB and the Fed is likely to push EUR/USD lower for now. This view will be challenged, however, if upcoming US inflation data shows a surprise drop below expectations. A softer US jobs report could also quickly shift sentiment and cause a sharp rebound.
