Chart of the day: EURUSD (05.06.2025)

The EURUSD exchange rate returned above 1.14 yesterday in response to surprisingly weak macroeconomic data from the U.S. The euro's appreciation in recent weeks had drawn attention even from members of the European Central Bank, who argued that monetary policy divergence (i.e., higher interest rates in the U.S.) should favor the dollar. Nevertheless, the market, observing the improvement in economic fundamentals in the Eurozone, sees potential for further gains in the pair.

While the U.S. grapples with the trade-off between weak economic growth and sticky inflation, the European Central Bank is starting to face rising deflationary pressure — a development that would normally limit the euro's upside potential. Eurozone HICP inflation has already fallen below the 2% target (1.9% in May; core at 2.3%), and ECB members are increasingly referring to the possibility of “undershooting inflation” in the coming months.

Future declines are also suggested by the fact that April’s inflation rebound in the Eurozone was driven by seasonal factors, such as high airfare and vacation package prices during the Easter period. Additionally, we’re seeing continued downward pressure on oil prices due to OPEC’s planned production increases, as well as a sharp slowdown in wage growth in Q1 2025 (2.4% from 4.1% in Q4 2024).

On the other hand, the Eurozone’s macroeconomic fundamentals — though still fragile — are attracting capital in the face of ongoing uncertainty in the U.S. If today’s NFP data confirms the employment slowdown signaled by ADP or ISM, we can expect further deterioration in sentiment toward the U.S. economy. Moreover, such a scenario would also boost expectations for Fed rate cuts, thereby neutralizing the monetary policy factor that has so far worked against EURUSD.

EURUSD has been trading above the 30-day exponential moving average (EMA30, dark purple) almost continuously since the end of February, driven mainly by uncertainty surrounding U.S. policy and economic outlook. After yesterday’s rebound, the pair has seen very limited volatility as investors await the ECB’s monetary policy decision and the NFP report. Source: xStation5