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Investing.com -- The EUR/USD is poised to add to gains against the dollar as the Federal Reserve is likely to turn more dovish just as the European Central Bank eyes the exit ramp on rate cuts.
“A more ’dovish’ Fed tone, set against an ECB that will cut again more begrudgingly, is a set-up for the EUR/USD to make more gains,” Macquarie strategists wrote, highlighting the growing divergence in central bank policy signals.
The shift comes as ECB President Christine Lagarde made it clear that further rate cuts will be “harder to justify than previous rate cuts,” with the central bank now “getting to the end of the monetary policy cycle.” Lagarde’s remarks followed the ECB’s seventh consecutive rate cut, and the bank’s deposit facility rate now sits close to the ‘neutral’ range estimated by ECB staff.
This hawkish tilt stands in contrast to the Fed, which Macquarie expects to sound “more dovish in June than it did in May,” especially if the U.S. unemployment rate breaks above its recent 4.1%-4.2% range.
On the euro side, the outlook is buoyed by stronger-than-expected Eurozone growth. Eurostat revised first-quarter GDP up to 0.6% quarter-over-quarter, the fastest pace since Q2 2022. Lagarde herself said she “would not be surprised” about the upward revision, reinforcing confidence in the euro’s fundamentals.