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Why the Dollar Keeps Winning the Battle Against the Euro
EUR/USD slips below 1.0800 as the Fed-ECB rate gap widens to 250 bps. Fawad Razaqzada breaks down the yield divergence and key levels to track. U.S. GDP and inflation data are the next catalysts.
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EUR/USD has slipped below 1.0800, and the pressure is coming from one place: the widening gap between how the Federal Reserve and the European Central Bank are handling rates. The Fed has signalled no rush to ease. The ECB has already cut and signalled more. That divergence is the engine driving the dollar higher against the euro, and Fawad Razaqzada, market analyst at FOREX.com, breaks down the mechanics.
The transmission runs through short-dated yields. Two-year Treasury yields hold near 4.70%. German bund yields sit below 2.20%. That 250-basis-point gap is the widest in months, and it pulls capital into dollars. Every time the euro tries to bounce, that yield gap caps the move before it gains traction.
Positioning compounds the problem. Speculative accounts have built net long dollar positions against the euro. Those trades are working. A reversal would need either a hawkish surprise from the ECB or a dovish pivot from the Fed. Neither looks imminent. The next ECB meeting is in June. The Fed's next decision is in May. Until then, the trend favours the dollar.