EUR/USD extends gains amid US credit downgrade and mounting concerns over Trump’s proposed tax bill

The EUR/USD pair rallied close to 1.1350 on Wednesday, marking its third consecutive day of gains. The Euro’s strength is largely driven by persistent weakness in the US Dollar (USD), which remains under heavy selling pressure following a downgrade to the United States (US) credit rating and rising political and fiscal concerns. The US Dollar Index (DXY), which measures the value of the USD against a basket of six major currencies, trimmed some of its earlier losses but still trades 0.3% lower near 99.70.

The latest blow to the Greenback came from Moody’s, which downgraded the US sovereign credit rating from Aaa to Aa1 last Friday, citing ongoing fiscal imbalances and rising interest obligations. Moody’s also flagged concerns about a potential increase in the US’s $36 trillion debt, especially as President Donald Trump pushes a new tax plan estimated to add another $3–$5 trillion to the deficit.

Adding to the pressure, President Trump failed to secure support from Republican lawmakers during a closed-door session on Capitol Hill to back his tax-cut proposal—an integral part of his economic agenda. According to Representative Mike Lawler, Republicans opposed the bill primarily due to its plan to raise the cap on state and local tax deductions, as reported by Reuters.

Looking ahead, traders are awaiting the preliminary S&P Global PMI data for May, set to be released Thursday. The data is expected to reflect steady expansion in overall business activity. Market participants will watch closely for insights from private-sector employers on whether tariff-related cost pressures are affecting decisions around capacity expansion and imports.

Meanwhile, Federal Reserve (Fed) officials continue to express caution. St. Louis Fed President Alberto Musalem warned on Tuesday that the White House’s economic policies could de-anchor inflation expectations, reinforcing the need to maintain the current interest rate stance. “If inflation expectations become de-anchored, the Fed policy should prioritize price stability,” Musalem said, adding that monetary policy is “well-positioned” given the unusually high level of policy uncertainty.

Daily Market Movers Digest: EUR/USD Climbs as Euro Outperforms Amid Geopolitical and Policy Optimism

• The EUR/USD pair extended its rally on Wednesday, approaching 1.1350, driven by broad-based Euro (EUR) strength. The single currency outperformed all major peers as market sentiment improved on the back of geopolitical optimism and dovish expectations for the European Central Bank (ECB).
• The Euro received a significant boost after US President Donald Trump announced that Russia and Ukraine would begin immediate ceasefire negotiations, reportedly taking place in Vatican City, via a post on Truth Social. “Russia and Ukraine will immediately start negotiations toward a ceasefire,” Trump stated.
• Such a truce would alleviate supply chain disruptions across Europe, especially in energy and commodities, supporting the regional economy and thereby lifting the Euro.
• From a monetary policy perspective, traders continue to price in an interest rate cut from the ECB in its June meeting, with several ECB officials providing guidance that inflation is gradually converging toward the 2% target.
• However, caution remains. On Tuesday, ECB Governing Council member Klaas Knot noted that while a rate cut in June cannot be ruled out, it also isn’t guaranteed. “I can't exclude we will decide to have another rate cut in June, but I also can't confirm it,” Knot told Reuters, pointing to uncertainties in the medium-term inflation outlook.
• Further reinforcing dovish sentiment, the European Commission’s Spring Forecast report suggested that inflation is expected to return to the ECB’s 2% target by mid-year, with price pressures averaging 1.7% in 2026—a signal of easing inflation over the long run.
• On the data front, traders are now focused on the HCOB Purchasing Managers’ Index (PMI) reports for the Eurozone and key member states, due Thursday. Preliminary estimates suggest that business activity expanded at a stronger pace in May compared to April, offering further support to the Euro's bullish trend.

Technical Analysis: EUR/USD Nears Two-Week High

Technically, EUR/USD has jumped close to 1.1350, reaching its highest level in two weeks. The pair remains in a bullish setup, holding above the 20-day Exponential Moving Average (EMA) near 1.1240, signaling underlying buying interest.

However, the 14-period Relative Strength Index (RSI) currently fluctuates within the 40.00–60.00 range, indicating some indecision among traders.

On the upside, the key resistance lies at the April 28 high of 1.1425, while on the downside, the psychological level of 1.1000 is seen as strong support for Euro bulls.