The U.S. dollar's long-standing exceptionalism showed fresh signs of erosion on Monday, as the euro advanced against the greenback in early European trading.
The EUR/USD pair climbed 0.3% to 1.0905, extending gains from Friday when it closed near three-week highs. The move reflected a broader softening in the dollar, which has retreated from recent peaks as market sentiment shifted. Analysts cited a combination of technical positioning and reduced demand for safe-haven assets as key drivers behind the dollar's pullback.
Technical resistance for the pair now looms around the 1.0950 level, a level last tested in mid-April. A sustained break above this threshold could open the path toward 1.1000, according to traders tracking momentum indicators. Support, meanwhile, is seen at 1.0850, where a cluster of recent lows has formed.
The dollar index, which measures the greenback against a basket of six major peers, fell 0.2% to 104.80, extending a three-day decline. The index has shed roughly 1.5% from its 2024 highs, as expectations for Federal Reserve policy easing later this year gained traction. Market pricing now implies a roughly 60% probability of a 25-basis-point rate cut by the Fed in September, up from around 50% late last week.
The shift in sentiment comes amid mixed U.S. economic data. Last week's nonfarm payrolls report missed expectations, while the ISM services PMI unexpectedly contracted in April. However, consumer inflation data for March came in slightly above forecasts, tempering bets on aggressive Fed easing. The interplay between growth and inflation remains a key focus for currency traders.
In Europe, the euro's advance was supported by signs of stabilization in the region's economy. The European Central Bank has signaled a cautious approach to policy normalization, with policymakers emphasizing data dependency. The ECB's next meeting is scheduled for June 6, where further guidance on rates and inflation will be closely watched.
Analysts at Goldman Sachs noted that while the dollar's exceptionalism is fading, the currency remains supported by structural factors, including its reserve status and deep liquidity. "The dollar's resilience is likely to persist, but the path of least resistance has shifted downward," the bank said in a note to clients.
Looking ahead, the focus will remain on U.S. economic releases, particularly inflation prints and labor market data, which could further influence Fed policy expectations. For the euro, risks include geopolitical developments in Eastern Europe and the ECB's evolving stance on rates.
The EUR/USD pair last traded at 1.0905, up 0.3% on the day.
