Key moments

• The EUR/USD pair is sustaining gains near its four-month peak of 1.0853, which was reached on March 7th.
• The U.S. Dollar is experiencing weakness as Treasury yields decline, driven by growing expectations of dovish policy adjustments from the Federal Reserve.
• The European Central Bank implemented a 25 basis point rate cut, but President Lagarde cautioned about downside risks to economic growth.

Amid Fluctuating Treasury Yields and Growing Expectations of Fed Rate Cuts, the EUR/USD Pair Continues to Demonstrate Resilience

The EUR/USD pair is experiencing an upward trend, recovering from previous session losses and trading around 1.0810 during Asian trading hours on Friday. This upward movement is primarily attributed to the weakening U.S. Dollar, which is being pressured by declining Treasury yields. Market participants are increasingly anticipating more aggressive interest rate reductions by the Federal Reserve this year, driven by concerns about U.S. economic growth.

Recent U.S. economic data indicates that Initial Jobless Claims for the week ending March 1st decreased to 221,000, down from 242,000 in the preceding week, as reported by the U.S. Department of Labor (DOL) on Thursday. This figure surpassed market expectations, which had anticipated 235,000 claims. Attention now turns to the U.S. Non-Farm Payroll (NFP) report, which is expected to show a modest recovery in job growth. Projections suggest that net job additions will rise to 160,000 in February, an increase from January’s subdued 143,000.

Traders are also closely monitoring developments in global trade. Canada has postponed its planned second round of retaliatory tariffs on U.S. products until April 2nd. This decision follows U.S. President Donald Trump’s decision to exempt Mexican and Canadian goods under the USMCA from his proposed 25% tariffs.

On Thursday, the European Central Bank (ECB) implemented a 25 basis point (bps) reduction in its Deposit Facility Rate, bringing it down to 2.5%. This marks the fifth consecutive rate cut. The Main Refinancing Operations Rate was also lowered by 25 bps to 2.65%, aligning with market forecasts.

During a subsequent press conference, ECB President Christine Lagarde explained that the decision to lower interest rates was aimed at bolstering economic stability. However, she emphasized that risks to economic growth remain skewed towards the “downside.” Lagarde also cautioned that trade tensions, particularly those stemming from U.S. President Trump’s tariff policies, could further hinder economic growth.

While market participants continue to anticipate further rate cuts to alleviate financing and borrowing costs, persistent inflationary pressures in the European Union, and now in the United States following a recent uptick in key inflation indicators, have constrained central banks’ ability to implement more aggressive rate adjustments.