The EUR/USD pair regained ground in Asian trading on Friday, climbing to the 1.1310 level after posting a 0.50% loss in the previous session. The rebound is largely driven by a pullback in US Treasury yields, which have lost momentum after the 30-year yield briefly spiked to 5.15%—its highest in 19 months. The retreat in yields is weighing on the US Dollar (USD), offering fresh support to the Euro.
Market sentiment turned cautious following the US House of Representatives’ approval of former President Donald Trump’s “One Big Beautiful Bill,” which now heads to the Senate. The legislation has sparked concern over fiscal sustainability, with projections showing the bill could significantly widen the US budget deficit.
Mixed PMI Signals and Fiscal Concerns Pressure the Dollar
Despite Thursday’s upbeat US PMI data—S&P Global Composite PMI rose to 52.1 from 50.6, with both Manufacturing and Services PMIs climbing to 52.3—the Greenback is struggling to maintain momentum. Market participants appear increasingly focused on the fiscal trajectory and the likelihood of Federal Reserve rate cuts, especially after dovish commentary from Fed Governor Christopher Waller. Waller indicated that high tariffs and current economic dynamics could open the door for rate reductions later this year.
ECB Tone Mixed, Eurozone Growth Stagnant
On the European front, commentary from European Central Bank (ECB) officials struck a cautious tone. ECB Governing Council member Boris Vujčić stated that inflation is expected to near the central bank‘s 2% target by late 2025 or early 2026. Meanwhile, Bundesbank President Joachim Nagel emphasized that current ECB interest rates are not yet restrictive, implying potential for further tightening if needed.
Economic data from the Eurozone continue to reflect subdued growth. The HCOB Flash PMIs for May confirmed sluggish momentum, with the Services PMI slipping to 48.9 (vs. 50.1 prior), and Manufacturing PMI improving slightly to 49.4 from 49.0. German PMI data mirrored this pattern—services deteriorated to 47.2 while manufacturing ticked up to 48.8. These soft indicators keep expectations in check ahead of the German Q1 Gross Domestic Product (GDP) data due later Friday.
Technical Outlook
The EUR/USD pair’s bounce above the 1.1300 mark is technically constructive, though the pair remains vulnerable to swings driven by macroeconomic news and yield dynamics. A sustained move above 1.1335 could open the door to retest the May highs, while failure to hold above 1.1270 may shift momentum back in favor of the USD.
With both central banks treading cautiously and markets digesting fiscal developments in the US and economic data from Europe, EUR/USD is likely to stay sensitive to yield spreads and incoming data, particularly the German GDP release later in the day.
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