EUR/USD Drops Below 1.13 As Fed Treads Cautiously Amid Looming Stagflation Risks
EUR/USD fell below 1.1300 during the North American session as the US Dollar (USD) remained firmer following the release of the Federal Reserve’s (Fed) latest meeting minutes. High US bond yields and a slightly downbeat mood have pushed the greenback higher against most G7 currencies.
On May 6-7, the Fed decided to keep interest rates unchanged, citing uncertainty about the impact of tariffs on the economy. The minutes revealed that policymakers were concerned that inflation could become more persistent, driven by the Trump administration’s inflation-prone trade policies.
The policymakers acknowledged some stagflation risks as they noted “The Committee may face difficult choices if inflation proves more persistent while the outlook for growth and employment weakens.”
As such, the Fed has taken a cautious approach to monetary policy, waiting for “the net economic effects of the administration’s policy changes to become clearer.” It is worth noting that the Fed meeting took place before Trump reduced tariffs on China from 145% to 30%.
Meanwhile, traders bought the greenback, which according to the US Dollar Index (DXY), rose 0.26% and is now close to testing the 100.00 mark.
Tuesday’s upbeat US Consumer Confidence report offset a worse-than-expected US Durable Goods Orders report, which felt the impact of US President Donald Trump’s controversial trade policies.
Across the pond, the European Central Bank’s (ECB) Consumer Expectations Survey in April revealed that consumers expect higher prices, as inflation expectations rose due to high uncertainty over US tariffs.
Meanwhile, ECB Chief Economist Philip Lane said the central bank is unlikely to cut interest rates below 1.50%. Lane said, “Rates below 1.5% are clearly accommodative. Moving rates below 1.5% would only be appropriate if there were a greater downside risk to inflation, or a more significant slowdown in the economy. I don’t see that at the moment.” (alg)
Source: FXstreet
