"The USD remains strong in the near term because the Fed has not yet been forced to ease policy rapidly, while the ECB is constrained by growth considerations. In the U.S., headline inflation is holding around 2.7% y/y, while core inflation remains near 2.6% y/y, indicating that underlying price pressures have not cooled sufficiently for the Fed to pivot early. Notably, housing costs are still rising above 3% y/y, highlighting persistent services inflation."
"Meanwhile, the Eurozone is entering a phase in which growth has become the primary constraint on monetary policy. Recent data suggest that the recovery remains weak and uneven, with Eurozone GDP growing at below 1% y/y, reflecting fragile domestic demand and high sensitivity to financing conditions. Although headline inflation has eased back toward 2%, core inflation is still around 2.3%, and this improvement is occurring alongside subdued growth, making it difficult for the ECB to maintain a restrictive stance for an extended period."
EURUSD currently tilts toward the USD due to diverging monetary policy paths and stronger U.S. economic indicators. Markets prioritize expected interest rate moves over the next 3–6 months rather than current rate levels. U.S. headline inflation near 2.7% and core around 2.6%, alongside housing inflation above 3% and wage growth near 3.8%, support Fed patience and higher-for-longer yields. The U.S. labor market remains stable with unemployment around 4.4%. Eurozone GDP growth below 1% y/y and core inflation near 2.3% create growth constraints that make prolonged ECB restrictiveness difficult and raise easing expectations.
Read at London Business News | Londonlovesbusiness.com
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