The EUR/USD pair came under renewed pressure on Thursday, nearing its lowest levels in nearly three weeks as market sentiment turned risk-averse following heightened political drama between U.S. President Donald Trump and Federal Reserve Chair Jerome Powell.
As of writing, the pair is trading around 1.1575, testing the lower boundary of the bearish channel that began forming from the July 1 high at 1.1830. With the Euro under strain and the U.S. Dollar gaining ground as a safe haven, the EUR/USD remains vulnerable ahead of key economic data from both the Eurozone and the U.S.
Powell-Trump Clash Shakes Market Confidence
Tensions flared on Wednesday when President Trump criticized Fed Chair Powell over the soaring renovation costs of the Federal Reserve’s historic building, even hinting at possible fraud allegations. Though Trump clarified he has no intention to fire Powell — citing market disruption concerns — he did express a desire for the chair’s resignation. The Federal Reserve swiftly denied any indication of Powell stepping down.
The spat has fueled speculation that Powell could eventually be replaced with a more dovish figure, potentially undermining the Fed’s independence. Such a move would likely stoke inflation concerns and dampen global investor confidence in the U.S. financial system.
Euro Struggles as Dollar Strengthens
The Euro continued to weaken in early European trading, retreating further after a disappointing Wednesday session. The decline comes despite positive Eurozone trade data released a day earlier, showing the region’s trade surplus widened to €16.2 billion in May, beating expectations.
Italian CPI data also showed a slight uptick in inflation to 1.8% year-over-year in June from 1.7%, though still below the European Central Bank’s 2% target—limiting its impact on the Euro.
Eyes on Eurozone CPI and U.S. Retail Sales
Markets are now turning their attention to two key data releases:
- Eurozone CPI: June inflation is expected to remain steady at 2% year-over-year, with core inflation holding at 2.3%, matching preliminary estimates.
- U.S. Retail Sales: A slight 0.1% monthly gain is forecast for June, following a 0.9% decline in May. Excluding autos, retail sales are expected to rise 0.3%.
Traders will also be watching the weekly U.S. jobless claims, expected to tick up to 235,000 from 227,000. A combination of strong consumer spending and low unemployment claims would support Powell’s “higher for longer” interest rate stance, potentially strengthening the U.S. Dollar further.
Inflation Worries Eased—for Now
Wednesday’s Producer Price Index (PPI) data brought some relief on the inflation front. U.S. PPI was flat for June, with the annual rate easing to 2.3% from 2.6%. Core PPI followed suit, falling to 2.6% year-over-year from 3% in May. These figures helped temper fears triggered by Tuesday’s hotter-than-expected CPI report.
Outlook:
With the EUR/USD pair sitting near a key support level, today’s inflation and retail sales reports from both sides of the Atlantic could shape near-term direction. But ongoing political uncertainty in the U.S. continues to cast a shadow over broader market sentiment.
