The EUR/USD pair commenced the third quarter at the 1.14 level, currently trading around 1.1410 after recovering from the one-year lows observed last week. The pair closed June at roughly 1.1400, a whisker off its weakest level since June 2025, and the bounce off the recent 1.1324 low did nothing to change the trajectory. The euro shed more than 2% against the dollar in June and gave back around 1.3% for the second quarter, sinking toward the bottom of the range that has contained it throughout the year. This is a market where the euro isn’t so much weak as overwhelmed — the single currency did something in June that should have lifted it, and the dollar steamrolled the move anyway. The technical structure indicates a bearish inclination. EUR/USD is currently positioned below the 1.1500 psychological threshold and under its significant moving averages on shorter timeframes. This setup restricts any upward movements and favours the sellers in the market. The pair has been steadily declining, characterised by a succession of lower highs, and the recent breach of new one-year lows last week has validated the persistence of the downtrend.
Momentum readings are positioned in neutral-to-bearish territory, with the relative strength gauge lingering near the midline after a recovery from oversold conditions. This indicates that while selling pressure has diminished, it has not yet reversed. The forces supporting the euro are predominantly positioned on the opposite side of the pair. A hawkish new Fed regime, a dollar index that surged above 100 to its highest in over a year, and a market anticipating a U.S. rate hike this year have collectively exerted downward pressure on EUR/USD, despite the European Central Bank adopting a more hawkish stance as well. The dollar, rather than the ECB, is in control, and that relationship shapes the market dynamics. The 1.14 zone represents the immediate battleground — a level that has withstood numerous tests this year, ranging from the March tariff-induced low to the June lows, and the pair is striving to maintain its position there. Lose it decisively and the subsequent support levels become accessible; reclaim 1.15 and the euro stands a chance at stabilisation. Over the past twelve months, EUR/USD has experienced only modest declines; it has not collapsed but remains range-bound, currently positioned at the softer end of that range, influenced by persistent dollar strength. The setup into July is a pair suspended at 1.14, caught between a hawkish Fed and a fading ECB tightening narrative, awaiting the jobs data and two central-bank meetings later in the month to resolve the impasse.
The defining puzzle of the euro’s June was a move that, under normal circumstances, would have propelled it higher, yet paradoxically resulted in a decline. The European Central Bank raised its deposit rate to 2.25% on June 11, marking a 25-basis-point hike and its first rate increase since 2023. The main refinancing rate increased to 2.40%, while the marginal lending rate rose to 2.65%, effective June 17. A first hike in three years represents a hawkish pivot that typically strengthens a currency significantly, as elevated rates attract capital in search of improved yields. The euro declined nonetheless. That paradox encapsulates the entire narrative of the current positioning of EUR/USD. The narrative surrounding the single currency’s monetary policy has shifted significantly towards a more hawkish stance; however, it remains unable to strengthen against the dollar, as the dollar’s narrative has concurrently become even more hawkish. When both sides of a pair lean in the same direction, the relative movement is significant, and the Fed has adopted a more hawkish stance compared to the ECB. The market responded to the ECB’s 25-basis-point hike, subsequently considered the Fed’s indications of potential hikes from a significantly higher baseline, and continued to sell the euro. The ECB’s move also arrived with a nuance that diminished its impact. The hike appeared almost paradoxical in light of declining oil prices, as Brent fell from over $110 a barrel in April to the low-$90s and lower following the U.S.-Iran ceasefire.
The ECB was responding to inflation that had already manifested in the data rather than the daily fluctuations of oil prices, yet the declining crude indicated that the forthcoming phase of eurozone inflation would likely moderate — suggesting that the June hike could be the final one for some time. A single rate hike does not foster a prolonged currency rally, and the market responded in kind. The rate increase reflected inflation that had already permeated the economy: eurozone headline inflation rose to 3.2% in May, marking the highest level since September 2023, while core inflation climbed to 2.5%. The ECB took steps to address the situation; however, with oil prices declining and inflationary pressures expected to subside, the tightening cycle appeared limited almost from the outset. That encapsulates the paradox entirely. The ECB delivered a hawkish surprise, enhancing the euro’s rate narrative; however, this development was overshadowed by a dollar supported by a Federal Reserve signalling potential hikes from 3.75%. The single currency’s hawkish pivot was overshadowed by the stronger stance of the greenback, resulting in a decline of EUR/USD, even though the ECB executed measures that should have provided upward momentum. The lesson of June is that in this pair, the dollar exerts significant influence.
The force pinning EUR/USD near one-year lows is not a result of euro weakness; rather, it is attributable to dollar strength, which can be directly linked to the hawkish stance adopted under Fed Chair Kevin Warsh. The greenback exhibited a notable strengthening throughout June, as the U.S. Dollar Index surpassed the 100 mark, reaching a peak close to 101.80, which represents its highest level in over a year. That surge extended the positive momentum initiated by the Fed’s hawkish hold, and it exerted downward pressure on EUR/USD even as the euro’s narrative became increasingly hawkish. The dollar is in command, full stop. The Fed maintained rates at 3.50% to 3.75% on June 17, yet indicated a probable increase this year, as nine of the eighteen members now foresee tightening. That shift — from a Fed anticipated to implement cuts to a Fed openly considering rate hikes — resulted in a comprehensive repricing of the dollar complex to higher levels. The market transitioned from pricing in U.S. easing to pricing in U.S. tightening, and a currency supported by increasing rates and a hawkish central bank draws in capital. The dollar attracted that capital, while the euro bore the consequences. Warsh’s arrival transformed the calculus. The new regime adopted a minimalist, data-dependent approach that indicated a shift toward restrictive policy, and the market responded positively by strengthening the dollar. His refusal to indicate any softening at the ECB’s Sintra forum reinforced the interpretation, maintaining demand for the greenback. When the global reserve currency boasts both a superior interest rate and a more aggressive central bank stance, it gains a competitive edge over nearly all contenders, placing the euro directly in its sights. The inflation backdrop supports a hawkish dollar.
U.S. inflation is significantly exceeding the Federal Reserve’s 2% target, with certain measures approaching 4.2%. This situation provides ample justification for hawkish policymakers to maintain a restrictive stance and consider further interest rate increases. Persistent inflation in the U.S., coupled with a robust labour market, results in a Federal Reserve that maintains a tight monetary policy. This tight stance from the Fed, in turn, contributes to a strong dollar. That combination has led to the euro’s decline. The dollar’s dominance over the pair also underscores its status as a safe-haven asset. Heightened geopolitical risk premiums and the prevailing risk-off sentiment that characterised the market’s opening of the quarter propelled capital flows into the dollar, thereby augmenting demand in conjunction with the interest rate narrative. When capital pursues both security and returns simultaneously, it gravitates towards the dollar, with both motivations aligning in June. For EUR/USD to recover, the dollar would need to reach a peak — which necessitates a dovish shift from the Fed or a significant deterioration in U.S. economic data. Neither has occurred. As long as the Warsh Fed indicates potential interest rate hikes and the dollar index remains above 100, the U.S. dollar maintains its dominance, keeping the euro constrained near its lows. The dollar is in control, directing EUR/USD downward.