Euro Surges to Three-Week High as Fed Policy Diverges from ECB
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the Euro is currently trading around $1.1720, up nearly 0.8% in the last two sessions,fueled by the Federal Reserve’s third consecutive 25 basis point (bps) interest rate cut which weakened the US Dollar. The Fed lowered the federal funds rate to a range of 3.50%-3.75%,its lowest level in three years,following a surprisingly close 9-3 vote – a signal of internal debate within the central bank.Despite the division, the US Dollar Index extended its decline toward $98.50,pressured by a dovish policy outlook and falling Treasury yields. The Fed’s proclamation of a $40 billion monthly treasury buyback program, an unexpected move to inject liquidity into the market, further pressured the USD and propelled EUR/USD to a three-week high.
ECB Maintains Firm Stance Amidst Fed Easing
In contrast to the Fed’s easing cycle, the European Central Bank (ECB) continues to hold a firm policy stance. President Christine Lagarde recently reiterated that Eurozone monetary policy is “in good shape,” even hinting at potential upward revisions to economic growth forecasts. This divergence in monetary policy is significantly tightening rate differentials in favor of the Euro.
Technical Outlook: Bullish Momentum Above $1.1620
Resistance levels are identified at $1.1730, $1.1760-$1.1780, and $1.1800, while support levels lie at $1.1680, $1.1620, and $1.1570-$1.1490. As long as EUR/USD remains above $1.1620, the technical structure strongly favors bullish momentum, with a potential target range of $1.1800-$1.1880.
US Jobs Data Looms Large
Market attention is now focused on the upcoming US employment report, with projections estimating 220,000 new jobs added, compared to the previous month’s 191,000, and a four-week average of 214,750. A weaker-than-expected labor print coudl confirm concerns that the Fed is falling behind a slowing economy, further weakening the dollar and potentially pushing EUR/USD above $1.1730 toward $1.1780. However, if the jobs data remains robust near 190,000, the USD could experience a brief recovery, sending EUR/USD back toward the $1.1650-$1.1620 range. Traders are closely monitoring this data to gauge whether the Fed’s rate-cut trajectory will accelerate in early 2026 or stall.
fed Liquidity Measures and Leadership Speculation
Beyond interest rate policy, the Fed’s $40 billion Treasury repurchase plan is injecting liquidity into the market while maintaining a cautious approach. This quasi-Quantitative easing (QE) measure aligns with Chair Powell’s “wait and see” strategy but concurrently diminishes the Dollar’s carry appeal. Meanwhile, speculation is mounting regarding potential leadership changes at the Fed, with markets pricing in the possibility of Kevin Hassett replacing Powell in May. Hassett is widely viewed as more dovish, a shift that could extend the USD’s decline into the first half of 2026. The resulting policy divergence between the Fed and ECB continues to benefit EUR/USD, which has already risen nearly 2.1% month-to-date.
Stabilizing risk Sentiment Supports Euro
Despite recent volatility in tech stocks following Oracle’s sharp drop, risk sentiment in Europe has stabilized. European equities have turned positive, while US futures remain slightly negative. This partial rebound is providing additional support for EUR/USD, as the Euro benefits from both improving local sentiment and a weaker Dollar. As long as risk aversion does not escalate into a broader global selloff, EUR/USD is expected to maintain its bullish bias toward $1.18.
Buyers are actively accumulating EUR/USD between $1.1620 and $1.1570, levels where consistent demand has emerged. If the pair sustains closes above $1.1730, technical models project a continuation toward $1.1800-$1.1880. A break below $1.1570 would be required to shift momentum back to neutral. For now, all indicators – rate differentials, technical structure, and market sentiment – align in favor of continued Euro strength.
