EUR/USD holds onto gains as Trump challenges the Fed's independence

EUR/USD trades near 1.1500 during European trading hours on Tuesday, showing resilience after a strong rally in recent weeks. The pair seems poised for a potential upward move as the US Dollar continues to struggle with the ongoing tension between the Federal Reserve (Fed) and US President Donald Trump over monetary policy.

The US Dollar Index (DXY), which tracks the Greenback against six major currencies, is attempting to find support after hitting a three-year low near 98.00.

President Trump continues to target Fed Chairman Jerome Powell, accusing him of failing to cut interest rates and warning that the US economy could face a downturn without immediate action. In a post on TruthSocial, Trump wrote, "With these costs trending so nicely downward, just what I predicted they would do, there can almost be no inflation, but there can be a SLOWING of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW."

Meanwhile, Powell has advocated for maintaining the current interest rate range of 4.25%-4.50% until it becomes clearer whether inflation driven by new economic policies is persistent or temporary.

Trump has also threatened to remove Powell a year before his term ends for not cutting interest rates. While it remains uncertain whether Trump can dismiss Powell, the ultimate decision on borrowing rates will still be made by other Fed members, none of whom have signaled a desire to ease policy immediately.

The ongoing political interference in the Fed’s operations, a traditionally autonomous institution, has eroded the US Dollar’s safe-haven appeal. Investors are increasingly questioning the credibility of the US Dollar and US assets amidst Trump’s continued attacks on the Fed's independence.

EUR/USD Holds Gains at US Dollar’s Expense Amid Trade War and Fed Feud

• EUR/USD remains solid around 1.1500, benefiting from the US Dollar's weakened status due to President Trump’s ongoing feud with Fed Chair Powell and the uncertainty surrounding US-China trade relations. Despite Trump announcing a 90-day pause on reciprocal tariffs to encourage fair trade agreements, the trade war remains unresolved, keeping the US Dollar on the defensive.
• The prolonged trade war between the US and China is taking a toll on the global economic outlook, including the US, where importers will absorb higher tariffs, passing the cost onto consumers and reducing household purchasing power.
• During European trading hours, the Euro (EUR) is trading cautiously, as market participants grow more confident that the European Central Bank (ECB) could cut interest rates again at its June policy meeting. ECB dovish bets have intensified due to increasing downside risks to Eurozone inflation amid fears of global economic instability.
• Last week, Citi analysts projected price growth of 1.6% for next year and 1.8% by 2027, ahead of the ECB’s Thursday interest rate decision. In a subsequent monetary policy announcement, the ECB reduced its key borrowing rates for the seventh time in the current easing cycle and issued a downbeat economic forecast. ECB President Christine Lagarde warned that the economic outlook for the Eurozone had become "clouded by uncertainty," with trade disruptions expected to weigh heavily on "business investment."
• Looking ahead, the Euro’s next significant trigger will be the preliminary Purchasing Managers’ Index (PMI) data for the Eurozone and its individual nations, scheduled for release on Wednesday.

Technical Analysis: EUR/USD Holds Gains Near 1.1500

EUR/USD maintains its gains around 1.1500 during Tuesday’s European session, following a breakout above the April 11 high of 1.1474. The pair's advance is supported by the 20-week Exponential Moving Average (EMA) near 1.0850, signaling a strong upward trend.

The 14-week Relative Strength Index (RSI) has reached overbought levels near 75.00, indicating robust bullish momentum, although a potential correction remains a possibility.

On the upside, the key resistance level is the psychological figure of 1.1600. On the downside, the July 2023 high of 1.1276 stands as critical support for the Euro bulls.