Euro Slides Under Dollar Pressure as Trade Hopes and Inflation Data Collide

The Euro is under siege, tumbling against a resurgent US Dollar as markets navigate trade war developments and mixed economic signals. On Thursday, May 2, 2025, the EUR/USD pair dipped to 1.1290, extending its decline amid thin European liquidity due to Labor Day closures. With the Dollar buoyed by trade optimism and Eurozone inflation data stirring debate, the pair’s trajectory remains precarious. Here’s what’s driving the Euro’s slide and what lies ahead.

Dollar Gains on Trade War De-escalation Hopes

The US Dollar’s second consecutive day of gains stems from renewed optimism about easing US-China trade tensions. Chinese state television reported that the US is proactively engaging through multiple channels to negotiate tariff reductions, boosting confidence in a potential thaw. This has strengthened the Dollar, putting downward pressure on the EUR/USD pair, which hit a daily low of 1.1265 and a high of 1.1341 before settling at 1.1290, down from Wednesday’s close of 1.1328. If trade talks gain traction, the Dollar’s rally could intensify, further weighing on the Euro.

Eurozone Inflation Sparks Mixed Signals

Eurozone inflation data added complexity to the Euro’s woes. February’s Consumer Price Index surged to 2.9%, a 11-month high, surpassing expectations of 2.3% and up from January’s 2.6%. While this suggests persistent price pressures, it also marked the slowest price growth in seven months, highlighting uneven economic momentum. The European Central Bank, led by President Christine Lagarde, faces a delicate balancing act as inflation flirts with the 2% target but fails to signal robust recovery. This ambiguity has weakened the Euro, especially against a Dollar riding trade-driven tailwinds.

Holiday-Thinned Markets Amplify Volatility

Thursday’s Labor Day holiday across much of Europe slashed market liquidity, exacerbating the Euro’s vulnerability. With fewer traders active, the EUR/USD pair faced amplified swings, unable to muster resistance against the Dollar’s advance. The pair’s technical outlook remains bearish, with 1.1265 acting as immediate support and 1.1341 as resistance. A break below 1.1265 could target 1.1200, while a push above 1.1341 might signal a short-term reprieve. Thin volumes will likely keep volatility high until markets fully reopen.

What to Watch Next

The Euro’s near-term fate hinges on trade developments and upcoming data. Sustained progress in US-China talks could entrench the Dollar’s dominance, pushing EUR/USD lower. Meanwhile, Eurozone PMI and retail sales data due next week will clarify whether inflation’s uptick reflects genuine strength or transitory pressures. For now, the Euro remains on the defensive, caught between a robust Dollar and Europe’s uneven recovery. Traders should brace for choppy sessions as markets digest these dynamics.