Euro Slides on Firm Dollar, Hawkish Fed Pressure EURUSD

Key Moments

EUR/USD traded around 1.1610 during the Asian session on Friday, marking a second consecutive day of subdued price action.
Strength in the US Dollar has been underpinned by rising expectations of a more hawkish Federal Reserve and resilient labor market data.
Flash PMI data showed the Euro Area economy contracted in May at its fastest pace since late 2023, weighing on the Euro.

Dollar Strength Keeps EUR/USD Under Pressure

EUR/USD remained on the back foot for a second straight session, hovering near 1.1610 in Asian trading on Friday. The pair continued to weaken as the US Dollar (USD) held firm, supported by building expectations that the Federal Reserve (Fed) may lean further toward a hawkish policy stance.

Markets have been pricing in the risk that disruptions to energy supplies arising from the ongoing war could continue to filter through to core US inflation and inflation expectations. Such pressures could encourage the Fed to keep interest rates elevated for longer. In addition, an improving outlook for US economic growth has been reinforcing the case for tighter monetary policy, further underpinning the Greenback.

Fed policymakers remain cautious as they assess whether changes to short-term interest rates are warranted. While the federal funds rate is currently on hold, officials are moving away from the prospect of near-term rate cuts and are increasingly signaling a willingness to raise rates again if inflation does not ease sufficiently.

Leadership Transition at the Federal Reserve

The administration of US President Donald Trump announced that Trump will swear in Kevin Warsh as the next chair of the US Federal Reserve on Friday at the White House. Warsh will take over from Jerome Powell, whose term expired on Friday. Powell has continued to serve on a pro-tempore basis pending the formal handover.

US Labor Market Data Support Hawkish Expectations

On the macroeconomic front, the latest figures from the US Department of Labor (DOL) pointed to ongoing resilience in the labor market. Initial Jobless Claims decreased by 3,000 to 209,000 in the second week of May. At the same time, Continuing Jobless Claims rose to 1,782,000 for the week ending May 9, compared with 1,776,000 in the prior week.

US Labor Indicator	Latest Reading	Previous Reading	Reference Period
Initial Jobless Claims	209,000	212,000	Second week of May
Continuing Jobless Claims	1,782,000	1,776,000	Week ending May 9

Euro Hit by Sharp Eurozone Growth Downturn

The Euro (EUR) struggled against the US Dollar as investors reacted to a surprisingly weak read on Eurozone activity. According to the latest S&P Global flash PMI data, released Thursday, the Euro Area economy contracted in May at its fastest pace since late 2023.

The downturn was linked to a surge in living costs driven by conflict-related factors, which has curbed demand for services and pushed input price inflation to its highest level in three years. The negative data added to pressure on the single currency at a time when the US Dollar is supported by expectations of higher-for-longer US rates.

Focus Turns to Key German Data Releases

Market participants are now looking ahead to a series of German releases that could shape sentiment toward the Euro. Upcoming indicators include the June GfK Consumer Confidence Survey, first-quarter GDP figures, and the IFO Business Survey. These data points will be closely watched for further clues on the health of the largest economy in the Euro Area and potential implications for the broader regional outlook.