The EUR/USD currency pair traded in a tight range around 1.1700 during the European session on Friday, with the US Dollar Index (DXY) remaining firm near its weekly high of 99.00 as investors awaited key central bank policy meetings next week [1]. Major central banks, including the Bank of Japan, Federal Reserve, Bank of England, and European Central Bank, are set to announce their monetary policies, with both the Fed and ECB expected to keep interest rates unchanged and emphasize a data-dependent approach for future decisions [1]. ECB officials are likely to warn of upside inflation risks, particularly due to higher oil prices stemming from the prolonged closure of the Strait of Hormuz, which is critical for nearly 20% of global energy supply [1].
On the economic front, the German IFO Institute's Business Climate Index fell sharply to 84.4 in April, missing expectations of 85.5 and down from a revised 86.3 in March [1][3]. The IFO Current Assessment Index also declined to 85.4 versus the 86.2 estimate and the previous 86.7, while the Expectations Index dropped to 83.3 against expectations of 85.0 and the prior 85.9 [3]. This weaker-than-expected sentiment data led to slight selling pressure on the Euro, with EUR/USD trading flat around 1.1685 after the release [3].
Analysts at ING, including Chris Turner, noted that rising short-dated Eurozone yields—driven by higher oil prices and the pass-through of input costs—have not provided clear support for EUR/USD [2]. Turner argued that the European Central Bank needs to get ahead of inflation expectations to support the Euro, as current two-year EUR/USD real interest rate differentials remain unsupportive [2]. He suggested that the probability of a June ECB rate hike is underestimated at 67% and may be revised higher in the coming weeks, but this alone may not benefit the Euro [2]. Turner sees downside risks for EUR/USD, with a likely move toward 1.1630 in the near term [2].
ECB Governing Council member Gediminas Simkus stated that an interest rate hike this year cannot be ruled out, but he does not support a rate cut at the upcoming April 30 policy meeting [1].
CONCLUSION
EUR/USD remains under pressure as disappointing German IFO data and cautious ECB commentary weigh on sentiment. While central banks are expected to keep rates unchanged, analysts see downside risks for the Euro, with ING projecting a move toward 1.1630. Market participants are closely watching upcoming policy decisions for further direction.