EUR/USD Breaks Above 1.1600 as Dovish Fed Outlook Weakens US Dollar

EUR/USD Breaks Above 1.1600 as Dovish Fed Outlook Weakens US Dollar

The EUR/USD currency pair advanced to 1.1630 in Friday’s Asian trading, recovering from earlier losses as the US Dollar weakened amid easing risk aversion and dovish signals from key Federal Reserve officials.

Fed Officials Hint at Imminent Rate Cuts

San Francisco Fed President Mary Daly said that expecting two interest rate cuts in 2025 is a “reasonable” assumption, adding that delaying such action could hurt the economy. Daly emphasized that interest rates are likely to settle above 3%, significantly higher than pre-pandemic levels.

Similarly, Fed Governor Christopher Waller suggested a rate cut as early as July, citing rising economic threats. Waller noted that postponing monetary easing may necessitate more aggressive cuts later, raising market expectations for a September policy shift.

Meanwhile, Fed Governor Adriana Kugler took a more cautious stance, urging policymakers to wait longer before cutting rates. Kugler also warned that tariff-related inflation pressures, particularly from Trump-era trade policies, are beginning to impact consumer prices, making it important to keep monetary policy tight for now.

Optimism Over US-EU Trade Deal Boosts the Euro

In addition to the Fed developments, traders are also optimistic about a potential US-EU trade agreement being finalized before August 1, further supporting the Euro’s momentum. The agreement is seen as a stabilizing factor for transatlantic trade flows, reducing uncertainty in currency and commodity markets.

EUR/USD Outlook: Testing Resistance Levels

With EUR/USD now well above the 1.1600 level, bullish momentum could continue if Fed dovishness persists and trade negotiations advance. However, mixed signals from policymakers like Kugler may cap gains unless supported by further data or confirmation of rate cuts in upcoming FOMC meetings.