Euro Declines Amid Dollar Strength and Fed’s Cautious Outlook

Euro Faces Downward Pressure

The euro fell against the US dollar on Wednesday, May 28, 2025, closing at 1.1291, down from 1.1329 the previous day. The EUR/USD pair hit an intraday high of 1.1345 and a low of 1.1283, reflecting volatility driven by a resurgent dollar and cautious signals from the Federal Reserve’s May 6-7 meeting Minutes. Optimism about improving US-EU trade relations supported the dollar early in the session, while the Fed’s reaffirmed commitment to a prudent monetary policy stance further strengthened the greenback.

Fed Highlights Economic Uncertainty

The Fed Minutes underscored growing uncertainty about the US economic outlook, with policymakers facing “difficult trade-offs” as inflation rises alongside unemployment. The central bank noted persistent risks of higher inflation and weaker job growth, raising concerns about potential stagflation. Officials emphasized a cautious approach, opting to monitor incoming data before adjusting policy. This wait-and-see stance has reinforced expectations that interest rates will remain unchanged in the near term, bolstering the US Dollar Index (DXY), which stabilized near 99.53 after hitting a high of 99.59 earlier in the week.

Eurozone Labor Market Struggles

Compounding the euro’s decline, Germany’s labor market data disappointed, with the unemployment rate unchanged at 6.3% in May. The lack of progress in the Eurozone’s largest economy highlights ongoing challenges in the region’s job market, adding downward pressure on the euro. As the Fed maintains its cautious outlook and Europe grapples with economic stagnation, the EUR/USD pair remains vulnerable to further declines, with markets awaiting key US data, such as the PCE inflation report, for additional cues.