During North American trading hours on Monday, the EUR/USD pair saw a 0.85% increase to an approximate value of 1.1270. This major currency pair gained strength as the US Dollar (USD) performed weaker against its counterparts due to a dip in the United States (US) Sovereign Credit Rating. The US Dollar Index (DXY), which tracks the value of the Greenback against six other major currencies, dropped to around 100.20.
Last week, Moody’s lowered the US’s long-term issuer and senior unsecured ratings from Aaa to Aa1. This downgrade in the US Sovereign rating was due to growing fiscal concerns, which experts believe the current administration will likely not be able to address in the near future. The decline in US credit has led to a significant rise in Treasury yields as investors factor in the risk premium. At the time of writing, 10-year US Treasury yields stood at 4.54%, an increase of 2.3%. There are also concerns among financial market participants that the “big beautiful bill” proposed by the White House will further drive up US bond yields.
In contrast, there is growing optimism about a possible trade deal between the US and China, which is expected to bolster the US Dollar. During an interview with Fox News over the weekend, President Donald Trump expressed confidence in a positive outcome, fueling hope for direct trade negotiations with Chinese President Xi Jinping.
On the monetary policy front, traders are increasingly convinced that the Federal Reserve (Fed) will not cut interest rates in the next two policy meetings. This is due to rising consumer inflation expectations, largely caused by import tariffs imposed by President Trump. Fed officials are instead focusing on bringing down these inflation expectations rather than prematurely reducing interest rates as a means of providing temporary support for potential economic instability. “Right now, we [The Fed] see more risk of higher inflation than the employment side of the mandate,” said Atlanta Fed Bank President Raphael Bostic during an interview with CNBC.
The EUR/USD pair started the week strong, reaching a value of around 1.1270. It has turned bullish in the short term as it successfully holds the 20-day Exponential Moving Average (EMA) at 1.1214. The 14-period Relative Strength Index (RSI) has also shown a strong recovery above 50.00 after dropping to around 40.00, indicating a increase in bullish momentum.
Looking ahead, the April 28 high of 1.1425 will be a significant resistance level for the pair, while the psychological level of 1.1000 will serve as a key support for Euro bulls.