EUR/USD is exhibiting resilience as the US Dollar experiences significant downward pressure, influenced by escalating US-China trade tensions. Deteriorating US consumer sentiment and rising one-year inflation expectations are contributing factors. The European Central Bank (ECB) is anticipated to reduce interest rates on Thursday. EUR/USD is attempting to surpass 1.1400 during Monday’s North American trading session, targeting a retest of the 1.1474 level, a high not seen in over three years, achieved on Friday. The pair’s strength is correlated with growing concerns regarding US stagflation, characterized by rising inflation, economic deceleration, and weakening employment. The US Dollar Index (DXY) is trending downwards, potentially breaching levels below 99.00. Market participants are increasingly factoring in the possibility of US stagflation, driven by declining consumer confidence and destabilizing inflation expectations. The University of Michigan’s preliminary Consumer Sentiment Index for April registered a significant decline to 50.8, the lowest since June 2022. US households are expressing concerns about recession risks stemming from the intensifying trade conflict with China, which recently implemented retaliatory tariffs on US goods. This tit-for-tat tariff escalation is expected to impede business investment and subsequently moderate economic growth.
