EURUSD Rises

EURUSD has reached its highest level since 2021, following a powerful five-month rally that delivered a 15.81% return. This move has been driven by concerns over U.S. trade and budget policy, along with shifting global economic dynamics. Today’s surge, however came with the FED’s decision to lower bank capital requirements. 

(GDP and CPI Forecast Difference / Eurozone – United States) 

From July of last year through February, the GDP forecast spread between the Eurozone and the U.S. narrowed, during which time EURUSD declined from 1.12 to 1.02. However, the economic philosophy shift under the new U.S. administration has started to change the outlook. 

The biggest driver of this change has been the anticipated negative effects of U.S. tariff policy, followed by reduced expectations for rate cuts. In response to shifting U.S. trade and geopolitical policies including a more restrained approach toward Ukraine, European countries have increased investments in technology and defense. This has boosted the EU’s growth outlook, pushing the GDP forecast spread in favor of the Eurozone and contributing to the rebound in EURUSD. 

Inflation trends have also diverged. While both regions were seeing disinflation, tariffs are expected to drive U.S. inflation up, potentially a one-time spike due to higher input costs, while the Fed maintains a hawkish stance. In contrast, Eurozone inflation could remain subdued as surplus goods and cheaper Chinese exports shift from the U.S. to Europe. As a result, the inflation forecast spread for 2025 between the EU and U.S. has dropped to -1, suggesting a relatively dovish ECB compared to a more constrained Fed, even as GDP growth converges. 

Markets tend to price in these macro shifts well in advance, often quarters before they fully materialize. With the inflationary impact of tariffs increasingly accounted for, the Fed may begin cutting rates faster than expected, while the ECB may already be near the bottom of its rate cycle. This forward pricing has been a key support for EURUSD. 

(EURUSD) 

Looking ahead, once rate cuts and weaker U.S. growth are fully priced in, EURUSD may enter a more range-bound phase over 2025–2026. However, this range could feature significant volatility. While the Fed is expected to cut rates, U.S. GDP forecasts for 2026 may begin to rise, which could trigger corrections in EURUSD. 

In the medium term, as long as the uptrend shown in the chart remains intact, EURUSD bulls are likely to maintain control. The immediate resistance lies at 1.1750, where the rally sparked by the Fed’s decision to ease capital requirements might pause. If this level breaks, the next target could be 1.2020, the 38.2% retracement level of the broader 2008–2025 downtrend.