EUR/USD is trading around 1.1470, down 0.22% on Thursday and hovering near its lowest level in two months. The pair has retreated from the area above 1.1600 reached earlier this week, as the U.S. dollar continues to benefit from the Federal Reserve’s hawkish policy stance.
The Fed left its benchmark interest rate unchanged in the 3.5%–3.75% range on Wednesday, matching market expectations. However, updated economic projections indicated that roughly half of the Federal Open Market Committee members still anticipate at least one more rate hike before year‑end. In his first press conference as Fed Chair, Kevin Warsh reaffirmed the commitment to bringing inflation sustainably back to the 2% target, citing a resilient labor market and persistent underlying price pressures.
Thursday’s U.S. labour‑market data reinforced this view. Initial jobless claims fell to 226,000 for the week ending June 13, while continuing claims rose to 1.81 million, suggesting that the labour market remains strong enough to support a restrictive policy bias.
These monetary‑policy expectations are bolstering the dollar, even as geopolitical tensions ease after a preliminary agreement between the United States and Iran aimed at ending hostilities in the Middle East. While improved geopolitics could reduce demand for safe‑haven assets, the Fed’s hawkish stance is currently the dominant driver in currency markets.
On the euro side, economic prospects remain challenging. Germany’s IFO Institute confirmed its outlook for weak growth and elevated inflation, projecting average inflation of 2.9% this year and 2.7% in 2027, with GDP growth of just 0.8% for both this year and next.
The European Central Bank’s chief economist, Philip Lane, said further rate hikes remain justified even under a milder scenario and that the ECB could look through temporary shocks that are unlikely to have a lasting impact on inflation. Nevertheless, investors are more concerned about slowing growth in the Eurozone than the risk of additional monetary tightening.
