Insights 
VT 
The EUR/USD experienced a rise of 0.36%, ending the week almost unchanged after President Trump postponed military action against Iran. Governor Waller advocated for a rate cut in July, contrasting with a more cautious approach from other reports. As the deadline approaches, uncertainties about a trade deal between the EU and US could limit potential gains.
Despite deteriorating risk appetite, the Euro gained ground against the US Dollar as Trump chose diplomacy over conflict. The US trade policies, especially those affecting chipmakers with Chinese operations, have negatively impacted market sentiment. Meanwhile, Iran stated its unwillingness to negotiate amidst ongoing hostilities with Israel.
Fed Rate Talk And Market Implications
The support for the Euro was further strengthened by the Fed’s varied stances on rate cuts, especially with the upcoming meeting in July. External issues such as the EU-US trade agreement remain unresolved, raising concerns as the deadline nears. The EU Consumer Confidence index fell short but did not deter EUR/USD’s rise.
During the week, the Fed chose to maintain rates between 4.25%-4.50%, revising economic projections slightly. Key data indicated a stable labour market and a need to continue monitoring inflation trends. Despite adverse economic indicators, the currency pair could be buoyed by the ECB’s stance on monetary policy.
Looking at the prior movements, we saw EUR/USD gaining modestly, despite broader markets leaning risk-off. That came on the back of heightened geopolitical restraint from Washington, which helped reduce immediate market tension. While Trump’s decision not to escalate matters in the Middle East offered some relief, the pressure on global chipmakers — especially those exposed to tighter US-China trade policy — hasn’t shown the same signs of easing. This mix of restraint and volatility has left positioning in the currency market particularly sensitive to external developments.
Waller’s push for a rate cut introduced notable divergence among Federal Reserve members – a split that traders will want to monitor closely over the coming weeks. His remarks suggest a forward-leaning stance within part of the Fed, but this isn’t consensus-driven yet. What’s clear is that any data surprises in inflation or labour could shift this internal balance. As rates remain inside their current band, that divergence increases the relevance of near-term inflation signals, particularly through CPI and PCE prints. In short, we’ll need to watch not just decisions, but the tone and direction of debate inside the FOMC.
Steady Eurozone Inflation Outlook
The data flow from the eurozone hasn’t been inspiring. That said, despite another miss in the Consumer Confidence index, the EUR maintained its strength. A soft miss was likely priced in, with expectations already low – but the stubborn resilience of inflation in the euro bloc acts as a prop for EUR/USD, particularly if the ECB’s tone holds steady. We know that pricing in future expectations often trumps actual prints, and that seems reinforced here.
Economic forecasts from the Fed were revised only slightly, preserving a base case that assumes steady employment and inflation easing gradually. That tells us markets need to stay vigilant, especially as mixed tone from Fed members suggests incoming data will remain the primary driver. Any deviation in wage growth or services inflation will likely sway expectations for the July meeting.
The immediate path for EUR/USD appears reactionary – largely dependent on sentiment around trade negotiations between Brussels and Washington. Those talks are far from settled, and until we see something more concrete, the EUR could struggle to break upward decisively. Pricing in friction there would be wise. We can anticipate broader FX moves to remain congested, especially if negotiations stagnate or stall entirely.
As we edge closer to July’s policy decisions, forecasting from a derivatives perspective means narrowing focus to policy asymmetry and timing of rate expectations – both in the eurozone and US. That asymmetry, notable now as the ECB and Fed seem to chart divergent paths in tone if not always in action, offers short-term spreads to monitor. Forward guidance uncertainty likely increases volatility in rates-sensitive instruments, which could widen intraday swings, especially around economic releases.
Directionally, upward momentum for the EUR remains capped, especially with residual US strength supported by the Fed’s reluctance to soften as quickly. But with declining US growth signals gaining visibility, there’s potential for downward pressure on the dollar — if incoming figures tip the scale more decisively toward Waller’s camp. As a result, calendar sensitivity remains high – Friday payrolls and any unexpected CPI deviations should be treated with higher impact potential than usual.
In navigating the next few weeks, attention should be paid less to single data points, and more to how they affect the composite narrative within each central bank. It’s that broader narrative which will dictate response across rates space and FX forwards, especially as vol-adjusted return appetites begin to narrow. We’ll need to remain nimble, with positioning focused on policy shifts rather than headlines.
