EUR/USD Slides as Hawkish Fed Rhetoric Strengths Dollar

Key Moments

Dollar Strength Pressures Euro in Early European Trade

The Euro (EUR) is modestly weaker against the US Dollar (USD) in early European trading on Friday, with EUR/USD hovering close to 1.1375. The pair remains confined within Thursday’s trading range but continues to face selling interest as the US currency outperforms across major counterparts.

At the time of writing, the US Dollar Index (DXY) – which tracks the performance of the Greenback against six leading currencies – is trading near its eight-week peak of 101.40 set on Thursday. Market participants see scope for additional Dollar gains as Federal Reserve (Fed) officials continue to communicate a hawkish policy outlook and emphasize the resilience of the US economy.

While the Dollar has gained ground over the Euro, the single currency has generally fared better against several other peers amid expectations that the European Central Bank (ECB) will deliver another policy rate increase this year.

Fed Officials Reinforce Case for Further Tightening

Strategists at Brown Brothers Harriman (BBH) note that the USD is “powering forward against most major currencies,” supported by a Fed that remains firmly hawkish and a widening gap in US economic growth relative to other major economies. According to BBH, this backdrop suggests the Dollar “can keep flexing its muscle.”

They highlight comments from Fed Governor Michael Barr, who cautioned that “further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion,” reinforcing expectations that additional tightening may still be required.

BBH also points to remarks from New York Fed President John Williams, who described the US economy as showing “remarkable resilience,” while stressing that inflation is the “big challenge” and that “another rate hike may be appropriate by the end of the year.” In BBH’s assessment, the combined messaging from Barr and Williams “strengthen the case for additional Fed funds rate hikes,” providing a constructive environment for continued Dollar strength.

EUR/USD Technical Picture: Focus on 1.1350 Support

On the daily chart, EUR/USD trades near 1.1376 and maintains a negative short-term setup as the pair stays below the 20-period exponential moving average (EMA) at 1.1501. The cross has been retreating steadily from recent highs, and the Relative Strength Index (14) is deeply in oversold territory around 25. This reading indicates stretched downside conditions but does not in itself confirm that a bullish reversal is imminent.

On the upside, the first key barrier is located around 1.1400, which needs to be reclaimed before buyers can challenge the 20-period EMA at 1.1501. A sustained move above that moving average would be required to significantly ease immediate selling pressure.

On the downside, failure to hold the nearby support zone around 1.1350 could open the door to a new leg lower for the pair.