uploaded image
Image generated with Dall-e 3

Euro May Turn Lower vs. Dollar After 6-Week Rebound Hits a Wall

By:Ilya Spivak

The euro recovered against the dollar as soggy U.S. economic data pushed markets to recalibrate Fed vs. ECB rate-cut expectations

  • The euro scores a six-week rise vs. dollar as U.S. data shifts relative policy outlook.

  • Fed vs. ECB rate cuts in 2025 are now in focus as speculation on this year settles.

  • Soft Eurozone CPI data may pressure the euro as markets readjust again.

Two weeks ago, the euro looked poised to turn the tide against an ascendant U.S. dollar. The single currency punched higher in a move that broke the series of lower highs and lows that defined the downward trend since the beginning of the year as U.S. inflation data weighed on the greenback.

That might have set the stage for further gains. As it happened, they’ve not materialized. The euro hit a wall the very next day after its would-be breakout, then slid back. It has since settled in an uneasy range between the 1.08 and 1.09 figures.

How dovish is the ECB? It’s all relative

The euro still has the dubious honor of being attached to the most dovish of the major central banks, according to policy expectations priced into interest rate futures. The European Central Bank (ECB) is expected to deliver 69 basis points (bps) in rate cuts this year, compared with just 24 bps left on the menu for the Federal Reserve.

Fed vs. ECB Implied Rate Spreads.png

This might have been expected to support the dollar against its European counterpart. It did precisely that since January and through mid-April, which saw the euro shed over 4.8%. The rebound played out over the past six weeks appeared as traders looked further downfield.

Over this time, the spread between the Fed and ECB policy rates expected by the end of this year has held broadly steady, oscillating in a narrow range around 40bps. The path thereafter has shifted in the euro’s favor, however. While the 2025 rate cut tally for the ECB has barely budged, that of the Fed has moved from 40bps to 63bps in easing.

Euro at risk as inflation data looms ahead

Divergence in the tone of economic news-flow seems to have accounted for the change. Analytics from Citigroup show U.S. data outcomes deteriorating relative to baseline forecasts while those from across the Atlantic are little changed over the very six weeks that the euro has recovered.

Eurozone HCPI Y:Y - Components.png

The spotlight now turns to Eurozone consumer price index (CPI) data. It is expected to show that headline inflation inched up to 2.5% year-on-year in May after hitting a four-month low of 2.4% in March and idling there in April.

The leading PMI survey data points to softening pricing power this month, even as the rebound in economic activity speeds up. If that sets the stage for a downside CPI surprise, a readjustment of the priced-in policy path back in the greenback’s favor might put the euro on the defensive.

Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak

For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro. 

Trade with a better brokeropen a tastytrade account today. tastylive, Inc. and tastytrade, Inc. are separate but affiliated companies. 

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Related Posts

tastylive content is created, produced, and provided solely by tastylive, Inc. (“tastylive”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastylive is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer.  Options, futures, and futures options are not suitable for all investors.  Prior to trading securities, options, futures, or futures options, please read the applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange-Traded Options Risk Disclosure found on tastytrade.com/disclosures.

tastytrade, Inc. ("tastytrade”) is a registered broker-dealer and member of FINRA, NFA, and SIPC. tastytrade was previously known as tastyworks, Inc. (“tastyworks”). tastytrade offers self-directed brokerage accounts to its customers. tastytrade does not give financial or trading advice, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastytrade’s systems, services or products. tastytrade is a wholly-owned subsidiary of tastylive, Inc.

tastytrade has entered into a Marketing Agreement with tastylive (“Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade. tastytrade and Marketing Agent are separate entities with their own products and services. tastylive is the parent company of tastytrade.

tastycrypto is provided solely by tasty Software Solutions, LLC. tasty Software Solutions, LLC is a separate but affiliate company of tastylive, Inc. Neither tastylive nor any of its affiliates are responsible for the products or services provided by tasty Software Solutions, LLC. Cryptocurrency trading is not suitable for all investors due to the number of risks involved. The value of any cryptocurrency, including digital assets pegged to fiat currency, commodities, or any other asset, may go to zero.

© copyright 2013 - 2024 tastylive, Inc. All Rights Reserved.  Applicable portions of the Terms of Use on tastylive.com apply.  Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastylive’s podcasts as necessary to view for personal use. tastylive was previously known as tastytrade, Inc. tastylive is a trademark/servicemark owned by tastylive, Inc.