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EUR/USD fell to around 1.1380 during North American trading hours after reaching a monthly high of 1.1425 earlier in the day. This drop occurred as the US Dollar Index (DXY) rebounded to near 99.00, recovering from initial losses.
Although the US Dollar’s future remains uncertain due to inconsistent tariff-related statements from Washington, President Trump postponed imposing 50% tariffs on the EU until July. This was after the EU agreed to expedite trade talks and requested more time to secure a favourable deal.
Negotiations Between Eu And Us
Over the weekend, EU Commission President Ursula von der Leyen expressed readiness to advance negotiations with the US. On Friday, Trump had announced plans for significant tariffs on EU imports, but quick de-escalation eased tensions and provided relief to equity markets and the Euro.
German Economy Minister Katherina Reiche urged calm in tariff proceedings. The US Dollar has struggled due to Trump’s tariff policies, threats to Fed Chair Jerome Powell, and a new tax and spending bill expected to increase the national debt by $3.8 trillion.
German Q1 GDP data revealed faster growth than initially estimated, aiding the Euro. ECB officials remain optimistic inflation could hit a 2% target, potentially leading to another interest rate cut.
This week’s EUR/USD trajectory might be influenced by upcoming US PCE data and EU HICP data. The pair faces resistance at 1.1475 and support at 1.1215.
Impact Of Us Fiscal Policy
The US Dollar serves as the official currency of the United States and several other countries. Monetary policy by the Federal Reserve crucially impacts the US Dollar’s value, with quantitative easing typically weakening it and quantitative tightening strengthening it.
The recent slide in EUR/USD to around 1.1380, following a brief surge to a one-month peak of 1.1425, came as the Dollar Index clawed its way back toward 99.00. The rebound was modest but enough to drag the Euro lower during the North American trading session.
Although early optimism appeared after von der Leyen signalled willingness to speed up trade negotiations, uncertainty lingers. The White House’s changing tone, moving from aggressive tariffs to temporary postponement, has made near-term forecasting difficult. Trump’s delay of a proposed 50% tariff on EU goods to July only extends the clock, not the underlying problem. From our standpoint, while the immediate risk of escalation has eased, positioning cannot rely on that holding.
Markets initially responded with relief. Reiche’s calls for measured dialogue might have avoided more aggressive repricing, particularly in equity indices and risk-heavy currencies. But higher volatility in response to political headlines remains baked into the current environment. This is especially true for anything Dollar-sensitive.
Traders should also consider US domestic drivers. Fiscal policy in Washington, including the latest tax and spending bundle, is expected to widen the deficit by $3.8 trillion. That projection weighs heavily on Dollar sentiment, especially with fresh doubts circulating about pressure on chair Powell. The threat of perceived Federal Reserve independence being compromised continues to play into decisions across the board.
Meanwhile, incoming macro data firmed up consensus expectations for a pickup in Eurozone growth. Revised Q1 GDP figures from Germany came in stronger than early estimates, giving the Euro some tailwind to offset Dollar strength. Market pricing now shows greater confidence in inflation pushing closer to the European Central Bank’s 2% medium-term aim. If that narrative holds, the current easing cycle might see a pause or at least a tone shift.
Focus now turns to inflation data from both sides of the Atlantic. We expect the US PCE figures to command greater short-term market attention–given the Fed’s direct attachment to those numbers–but the EU’s HICP reading will still matter. Any deviation from expectations would likely trigger rapid rebalancing of positions, particularly in front-end rate markets.
Technical levels offer some structure in this highly reactive environment. The 1.1475 resistance is relatively firm, previously tested during high-conviction buying. On the downside, closer attention may be needed around 1.1215. Should that zone break under pressure, downside extensions risk accelerating.
In the absence of any fresh policy initiatives, price action may remain more technical and headline-driven. We are not yet seeing clear directional conviction among larger funds, and open interest remains thin in some derivative instruments. That hesitancy reflects the policy noise from Washington and the early-cycle uncertainty lingering around the ECB.
Looking out a bit, leverage and volatility metrics suggest caution, with weekly implied vol climbing marginally. Positioning should align closely with event risk timelines, especially around scheduled data drops and confirmed policy remarks. Interventions, or even their hints, can create an outsized impact under current conditions. Constant reassessment is key.
