The euro extended its gains against the U.S. dollar, fully reversing its March slide, yet signs are building that a near-term pullback may be on the horizon as expectations for European Central Bank (ECB) policy shift.
Currency strategists report that markets have largely priced out the chance of an April rate hike, while still assigning meaningful odds to an increase in June. The common currency has been supported by those changing expectations and a softer dollar backdrop.
eur/usd back above 1.18 amid shifting rate outlook
Turner of ING said the EUR/USD pair has recovered to around 1.18, helped by evolving views on ECB policy. The bank is expected to keep its options open on future rate moves as it digests fresh economic projections.
This week marked the seventh straight session of gains for the euro, pushing the pair above 1.1800 for the first time since late February. The rise has been driven by a broadly weaker dollar and improved sentiment around geopolitical risks that are seen as relatively more favorable for the European economy.
softer U.S. inflation data weighs on the dollar
A key driver of the dollar’s recent weakness was the latest U.S. Producer Price Index release, which showed annual inflation at 4.0%, below the 4.6% economists had expected. The softer producer-price data has prompted traders to scale back expectations for a more aggressive Federal Reserve stance, undermining support for the greenback.
ecb signals caution and data dependency
From Washington, ECB president Christine Lagarde reiterated a cautious tone. She said the euro area economy is currently evolving between the bank’s baseline and adverse scenarios, and stressed that the governing council has no tightening bias.
Lagarde underscored that policymakers must remain “agile and ready to move” depending on incoming information, reinforcing that any policy shift will be data-dependent.
Minutes from the ECB’s March 19 meeting, due for release shortly, followed by comments from officials in Washington, are expected to shed light on whether further tightening is still viewed as likely. Market participants interpret recent communication as a sign that the council is wary about the timing of any rate moves.
eurozone inflation heats up on energy surge
Preliminary Eurozone data showed annual inflation accelerating to 2.5% in March from 1.9% in February, moving above the ECB’s target. The jump was driven largely by a 4.9% year-on-year rise in energy prices, reflecting persistent geopolitical tensions.
The final March inflation figures, due today, are seen as a key input for the ECB’s next steps and could influence the near-term path of EUR/USD.
policy path: April unlikely, focus turns to June
ECB policymaker Alexander Demarco recently said that if the adverse economic scenario were to materialize, expectations for two rate hikes this year would be a “reasonable” assumption. However, he cautioned against rushing any decision.
With a move at the late April meeting now widely viewed as unlikely, attention has shifted toward the June meeting as the most plausible window for a first rate adjustment, depending on how growth and inflation data evolve.
technical levels highlight correction risk
On the technical front, the immediate test for EUR/USD lies in a resistance band between 1.1810 and 1.1860. Analysts warn that failure to breach this zone could trigger a corrective pullback toward the 1.1700 area, identified as a short-term support level.
Recent trading suggests the pair could retreat if sentiment weakens, particularly if data or communication from central bank officials challenge current expectations on growth, inflation, or the timing of rate moves.
volatility expected to stay elevated
Traders are bracing for elevated volatility ahead of the ECB’s June meeting, with market direction likely steered by:
- today’s final Eurozone inflation numbers for March
- upcoming speeches from ECB and Federal Reserve officials
- any shifts in geopolitical risks that feed into energy prices and growth forecasts
For now, the euro’s rally has erased March’s losses, but the balance of data, policy signals, and key technical levels points to a market that remains vulnerable to short-term corrections.
Want macro context behind EUR–USD moves? Compare crypto’s response in what do interest rates have to do with Bitcoin.
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