EUR/USD rises as Fed rate hike bets fade on softer U.S. data
Dollar weakens after U.S. economic reports reduce bets on a Federal Reserve rate increase, lifting the euro against the greenback.
The euro advanced against the U.S. dollar on Friday as softer-than-expected U.S. economic data reduced market expectations for a Federal Reserve interest-rate hike next month.
The EUR/USD currency pair rose 0.3% to 1.0850, extending gains from the previous session after data showed a decline in U.S. jobless claims and a slowdown in manufacturing activity. The dollar index, which tracks the greenback against a basket of major currencies, fell 0.2% to 104.10.
Traders scaled back wagers on a Fed rate hike following the release of the data. Federal funds futures implied a 58% probability of a 25-basis-point increase at the central bank’s next policy meeting on May 1, down from 68% a day earlier, according to CME Group’s FedWatch tool. The shift reflected growing concerns over the pace of U.S. economic growth amid persistent inflation pressures.
European Central Bank policymakers have signaled a more cautious approach to monetary tightening, with some officials emphasizing the need to assess incoming data before deciding on further rate adjustments. ECB Governing Council member François Villeroy de Galhau reiterated on Thursday that borrowing costs in the eurozone are likely to remain restrictive for an extended period, though he did not rule out further hikes if necessary.
The divergence in policy outlooks between the Fed and the ECB has supported the euro’s recent strength. While the Fed faces uncertainty over inflation and growth, the ECB has maintained a more hawkish stance, keeping rates elevated to curb price pressures.
Analysts at Goldman Sachs noted that the recent data could delay a Fed rate hike, but they cautioned that a sustained decline in inflation would be required to shift the central bank’s stance materially. "The Fed remains data-dependent, and one month of softer data does not alter the broader inflation trajectory," the bank said in a client note.
The euro’s gains were also supported by a modest rebound in European equities, with the Stoxx 600 index up 0.4% as investors digested mixed corporate earnings and economic signals. The dollar’s pullback, however, remained the primary driver of the EUR/USD move.
Sophie covers currency markets and central bank policy across Europe, with a focus on how rate decisions ripple through FX pairs. She has been tracking the ECB's policy path since the start of the current easing cycle.
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