"The upward momentum of EURUSD has begun to fade in recent sessions, reflecting a partial rebound in the US dollar and suggesting that the earlier rally was more corrective in nature rather than signalling a trend reversal."
"Although price pressures have eased compared to previous periods, cost factors such as energy prices, production costs, and wages remain elevated, making inflation more persistent rather than quickly returning to target."
"The European Central Bank is facing a more complex backdrop, as inflation in the Eurozone has declined significantly and is no longer the primary concern, while economic growth remains weak."
"Should energy prices remain elevated, inflation could re-emerge in the form of cost-push pressures, placing the ECB in a policy dilemma: tightening to contain inflation could further harm growth, while easing could risk reigniting price pressures."
EURUSD has recovered from a low of 1.1411 since mid-March, but recent sessions indicate fading upward momentum. The Federal Reserve has cut rates by 175 basis points since September 2024 and is maintaining rates between 3.50-3.75%. Inflation remains persistent due to elevated costs, limiting tightening scope. The Eurozone faces weak growth and declining inflation, with energy price risks posing a dilemma for the ECB. Structural differences and interest rate differentials continue to support the USD's advantage.
Read at London Business News | Londonlovesbusiness.com
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