The EUR/USD pair is trading near 1.0900 on Thursday after declining for two consecutive sessions. However, the pair rebounded as the US Dollar (USD) remained under pressure, weighed down by falling Treasury yields following the Federal Reserve’s reaffirmation of two rate cuts later this year. Despite this, uncertainty surrounding US President Donald Trump’s tariff policies continues to create caution in the market.
US Dollar Weakens as Treasury Yields Decline
The US Dollar Index (DXY), which measures the USD against six major currencies, is hovering near 103.40 as US Treasury yields continue to slide. The 2-year yield stands at 3.97%, while the 10-year yield is at 4.24%. The decline comes after the Fed announced a slower pace of quantitative tightening, citing concerns over liquidity and potential risks tied to government debt limits.
As expected, the Federal Reserve held the federal funds rate steady at 4.25%–4.5% during its March meeting. Fed Chair Jerome Powell reiterated that while labor market conditions remain strong and inflation is nearing the central bank’s 2% target, it still remains slightly elevated.
Germany’s Debt Plan and ECB Policy Outlook
In Europe, German leaders approved a debt restructuring plan proposed by likely Chancellor Friedrich Merz on Tuesday. The plan aims to stimulate economic growth and boost defense spending, signaling a potential shift from Germany’s traditional fiscal conservatism. Market participants believe this policy shift could drive inflation and economic expansion, potentially influencing the European Central Bank (ECB) to reconsider its current monetary stance.
Traders will closely monitor ECB President Christine Lagarde’s remarks on Thursday, as she is set to deliver an introductory statement on Economic and Monetary Affairs (ECON) at the European Parliament in Brussels. Her comments could provide further insight into the ECB’s monetary policy direction amid shifting economic conditions in the eurozone.
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