The EURUSD currency pair has experienced a notable rebound, climbing back to around 1.1630 after dipping below the 1.16 mark earlier. This shift is driven by disappointing US macroeconomic data, hawkish signals from the European Central Bank (ECB), and geopolitical developments, particularly concerning the Middle East. The US GDP growth estimate was revised down to 1.6%, while inflation data aligned with expectations, easing concerns about aggressive Federal Reserve rate hikes.

This divergence in economic outlooks is significant for market participants. The ECB’s minutes indicate heightened inflationary risks in the Eurozone, suggesting a strong likelihood of interest rate hikes, with a 93% probability of a June increase priced in. Meanwhile, the cooling US economy may temper Fed tightening expectations, leading to a weaker dollar.

Investors should monitor the EURUSD closely, as the current technical setup indicates that support at 1.16 is holding, potentially paving the way for a test of higher resistance levels. The evolving geopolitical landscape, particularly regarding Iran, could also influence market sentiment and currency dynamics in the coming weeks.

Source: xtb.com