By Linh Tran, Market Analyst at XS.com
In the context of the U.S. government officially reopening after the longest shutdown in history, the currency market is entering an important week as a series of delayed economic data releases are about to return. This is also a crucial period for EUR/USD, as both the U.S. dollar and the euro face fundamental factors that may influence their short- and medium-term trends.
For the U.S. dollar, although the Fed cut rates by 25 basis points in October, U.S. interest rates remain at 3.75–4.00%, significantly higher than those in the Eurozone. This gap continues to provide a clear advantage for the USD through interest rate differentials and Treasury yields, helping the DXY recover notably toward the 100-point level.
At the same time, the government’s reopening restores the flow of key U.S. economic data that had been delayed for more than a month. With inflation still hovering around 3%—above the Fed’s 2% target—the market has reason to believe that the Fed will not rush to accelerate rate cuts. Fed officials have delivered similar signals, effectively scaling back expectations of another cut in December. This strengthens the USD’s position and keeps it stable or firmer, especially when risk-off sentiment emerges.
In contrast, the euro’s fundamental backdrop remains weak. Economic growth in the Eurozone continues to slow, particularly in Germany, where PMI readings have stayed below 50 for many consecutive months. Inflation is declining faster than expected, but this largely reflects weak demand rather than a healthy recovery. The European Central Bank (ECB) has little incentive to shift its policy stance, leaving the euro without meaningful upward momentum.
Although the latest European Commission survey shows that support for the common currency has reached a record high of 83%, this is still insufficient to offset the deterioration in the Eurozone’s real economic foundation.
The balance continues to tilt toward the USD. Global investors still regard the dollar as a safe-haven asset during periods of uncertainty. Currently, the market is preparing for a wave of backlogged U.S. data releases. If these reports show stability or come in stronger than expected, it would reinforce the view that the Fed will maintain a cautious easing path, providing further upward pressure on the USD. Conversely, if the data point to a weakening economy, it could prompt the Fed to shift its stance, potentially giving the euro an advantage over the dollar.
Overall, EUR/USD is likely to remain range-bound while the market focuses on this week’s economic data. Downward pressure will intensify if upcoming U.S. releases lean positive, pushing expectations toward a more cautious Fed regarding future rate cuts. Meanwhile, a notable recovery in the euro would only occur if U.S. data come in below expectations or if the Eurozone unexpectedly shows signs of improving growth.