The EUR/USD pair is witnessing a downturn, currently positioned around 1.1660 in the early hours of the Asian trading session on Friday. Recent US inflation reports, which surpassed expectations, have prompted markets to dismiss the likelihood of rate cuts for the remainder of 2026. Trump indicated that Chinese leader Xi has proposed to help facilitate peace negotiations with Iran. The EUR/USD pair is presently situated in negative territory near 1.1660 during the early Asian session on Friday. The US Dollar is appreciating against the Euro, driven by increasing US inflation linked to tensions in the Middle East. This development bolsters the expectation that the US Federal Reserve will uphold high interest rates for a prolonged duration or potentially raise them further.
This week’s US economic data indicated that the Producer Price Index inflation escalated to its peak rate since 2022 in April, while the Consumer Price Index saw its most significant rise since 2023. Recent US inflation data, which surpassed expectations, have reinforced the view of sustained high interest rates in the US. This development has reinforced the strength of the Greenback, while presenting challenges for the major currency pair. The current market expectations suggest a 36.9% likelihood that the US central bank will execute a minimum increase of 25 basis points in interest rates at the December meeting, up from last week’s 22.5%, according to the CME FedWatch tool.
Nonetheless, positive developments concerning the meeting between US President Donald Trump and Chinese President Xi Jinping in Beijing could increase the attractiveness of a riskier asset, such as the shared currency. On Thursday, Trump conveyed his aspiration for a relationship between the US and China that is “stronger and better than ever before.” He observed that Xi had extended support in addressing the conflict and pledged to refrain from providing military equipment to Iran. Xi is additionally promoting the reopening of the crucial Strait of Hormuz.