Euro holds modest gains
EUR/USD traded slightly higher on Friday, although the pair struggled to build stronger momentum as the US Dollar stabilized after the previous session’s weaker-than-expected US employment report.
Trading conditions were quieter than usual because US financial markets were closed for the Independence Day holiday.
Pair remains on track for weekly recovery
At the time of writing, EUR/USD was trading around 1.1438 after reaching an intraday high of 1.1462.
Despite limited upside on the day, the pair remained on course to end a two-week losing streak.
The US Dollar Index, which measures the Greenback against six major currencies, traded near 100.76 after falling earlier to a two-week low of 100.56.
Jobs data changes Fed expectations
Investors continued to reassess the outlook for Federal Reserve policy after the US jobs report came in below expectations.
The softer labor market reading reduced expectations for a near-term Fed interest rate hike, though it did not fully remove the possibility of additional tightening later this year.
Eurozone inflation complicates ECB view
The European Central Bank is facing its own uncertainty after Eurozone inflation data released earlier this week came in softer than expected.
That raised doubts about whether the ECB will deliver another rate increase in 2026.
Still, inflation remains above the 2% target, keeping the risk of further tightening alive if second-round effects from the recent energy shock begin to appear.
Central banks remain cautious
Fed Chair Kevin Warsh and ECB President Christine Lagarde both used cautious language at the ECB Forum in Sintra earlier this week.
Warsh said, “We are in the price stability business,” while also noting that “inflation risks have come down.”
Lagarde said risks are “more broadly balanced than a few weeks ago” and added that the Eurozone is “not in stagflation.”
She also said the ECB “will take necessary steps to contain inflation.”
Strategists see limited near-term upside
ING strategist Francesco Pesole said the market may remove expectations for ECB tightening before doing the same for the Fed.
“The risks are that markets price out all ECB tightening before doing the same for Fed tightening. While the impact beyond the near term can still be a net positive for EUR/USD (which often responds asymmetrically stronger to the Fed), this dynamic argues against a fast return to 1.16-1.17 from here.”
Pesole added that rallies may begin to lose strength above the 1.150 to 1.153 area under current conditions.
“We expect rallies to start getting tired beyond 1.150-1.153 in current conditions, and forecast a return above 1.16 only late in the summer.”
Market focus turns to inflation and policy
For now, EUR/USD remains caught between two shifting policy stories.
Weaker US labor data has cooled expectations for immediate Fed action, while lower Eurozone inflation has also reduced confidence that the ECB will tighten again soon.
The pair’s next move will likely depend on whether inflation pressures remain sticky enough to keep both central banks leaning toward higher rates later in the year.
