The EUR/USD pair faces selling pressure for a second straight day on Tuesday, trading below the mid-1.1800 region during the quiet Asian session. Even so, the overall fundamentals suggest traders should be cautious about expecting a deeper decline.
The US Dollar Index (DXY), which measures the US Dollar against major currencies, holds on to its recent gains and remains above 97.00. This keeps pressure on the pair. Meanwhile, the Euro is weighed down by growing expectations that the European Central Bank (ECB) could move toward a rate cut after Eurozone inflation dropped to its lowest level since September 2024.
However, the Dollar’s strength may not extend much further due to softer expectations for US monetary policy. Markets have increased bets that the Federal Reserve could reduce interest rates in June following weaker US consumer inflation data released last week. Concerns about the Fed’s independence also discourage aggressive bullish positions in the Dollar and help prevent sharp EUR/USD declines.
At the same time, positive risk sentiment reduces demand for the safe-haven Dollar. Traders are likely to wait for clearer signals about the Fed’s policy direction before opening new positions. Attention now turns to the upcoming FOMC minutes on Wednesday. Later in the week, the Advance US fourth-quarter GDP figures, the US Personal Consumption Expenditure (PCE) Price Index, and global flash PMI data are expected to provide further market direction.
