The euro edged lower against the US dollar on Wednesday during the Asian trading session, retreating to around 1.1400 after two consecutive days of gains. The pullback in the EUR/USD pair reflects renewed strength in the greenback, supported by easing trade tensions between the United States and China.
On Tuesday, US Commerce Secretary Howard Lutnick indicated progress in trade talks, noting that Washington and Beijing had reached a framework to implement the Geneva Consensus. According to Bloomberg, both countries are now awaiting final approval from their respective leadership. China’s Vice Commerce Minister Li Chenggang described the bilateral discussions as “rational and candid,” and said he would present the framework to Chinese officials.
The US dollar’s advance is further underpinned by stable Treasury yields, with traders adopting a cautious stance ahead of key inflation data. At the time of writing, the yield on 2-year US Treasury bonds stands at 4.01%, while the 10-year yield holds at 4.46%. The upcoming Consumer Price Index (CPI) report is expected to shed light on the economic consequences of recent tariff developments and provide broader inflation cues.
In contrast, the euro continues to face headwinds following last week’s policy shift by the European Central Bank (ECB), which delivered a 25 basis point rate cut—bringing borrowing costs to their lowest level since November 2022. The ECB also revised its inflation forecasts lower for 2025 and 2026, suggesting that its current easing cycle may be nearing completion.
ECB policymakers have emphasized a data-dependent approach going forward. On Tuesday, ECB member Olli Rehn cautioned against complacency, stressing the need to anchor inflation expectations at 2%. “We will take decisions meeting by meeting,” Rehn stated. Fellow policymaker Francois Villeroy de Galhau echoed this sentiment, emphasizing pragmatism and agility in response to incoming data.
With diverging monetary policy outlooks and heightened anticipation for US inflation figures, the EUR/USD pair may continue to face short-term volatility as investors adjust their expectations for interest rate trajectories on both sides of the Atlantic.
