The Euro (EUR) initially rebounded against the US Dollar (USD) after the European Central Bank (ECB) raised interest rates by 0.25% for the first time in nearly three years, revising its inflation forecasts upward and signaling further tightening could be on the table [1][2]. The ECB's decision was unanimous, with policymakers viewing inflation risks as tilted to the upside and growth risks to the downside. The policy rate now stands at 2.25% [2]. However, the Euro failed to sustain gains above the 1.1580-1.1590 resistance area, trading flat at 1.1575 after bouncing from two-month lows at 1.1500 [1][2].
Brown Brothers Harriman’s Elias Haddad noted that EUR/USD briefly dipped toward 1.1500 after the ECB decision before rebounding on optimism over a potential US-Iran peace breakthrough, which buoyed risk sentiment [2]. US President Donald Trump stated that a final deal with Iran could be signed in the coming days, though Iranian officials were more cautious, indicating no final decision had been made [1][2]. Despite the ECB's hawkish stance, Haddad expects EUR/USD to edge lower and stabilize closer to 1.1400, citing stronger US growth prospects relative to the Eurozone and the ECB's rate hikes occurring in a sluggish growth, high inflation environment [2].
The ECB also trimmed its real GDP growth projections for 2026 and 2027, reflecting concerns about the Eurozone's economic outlook [2]. Swaps markets are pricing in a 60% chance of another 25bps rate hike at the next ECB meeting on July 23, but analysts believe the ECB can afford to be patient, as cooling wage growth and subdued demand may help contain inflation [2].
In the US, Producer Price Index (PPI) data showed headline inflation accelerating to a 6.5% yearly rate, the fastest in over three years, while core PPI remained steady at 4.9%, below expectations [1][3]. The upcoming US Michigan Consumer Sentiment Index is expected to show consumer morale near historic lows, unlikely to provide significant support to the USD [1][3].
Technical analysis indicates that EUR/USD maintains a modest bullish bias in the near term, but gains remain capped by the late May-early April trading range. Bulls need to break above the 1.1580-1.1590 resistance to target higher levels at 1.1645 and 1.1685. Pullbacks have been contained above 1.1555, keeping two-month lows at 1.1500 at a safe distance for now [1].
CONCLUSION
The ECB's hawkish rate hike and upward inflation revisions provided only temporary support to the Euro, as concerns about Eurozone growth and stronger US economic performance weighed on EUR/USD. Analysts expect the pair to drift lower toward 1.1400, with further ECB tightening seen as possible but not imminent. Market sentiment remains cautious, with technical resistance capping Euro gains and downside risks persisting.