The EUR/USD pair extended its rally, reaching new highs as euro bulls gained momentum, fueled by a weaker US dollar and improving risk sentiment. Investors shifted toward the euro amid expectations that the European Central Bank (ECB) may maintain a firm stance on inflation, while softer US economic data pressured the greenback.
The euro’s strength comes as traders reassess the ECB’s monetary policy outlook, with policymakers emphasizing the need to keep rates elevated to combat persistent inflation. Meanwhile, in the US, recent economic reports, including weaker retail sales figures, have raised concerns over a potential slowdown, fueling speculation that the Federal Reserve may ease its stance sooner than expected.
EUR/USD 1-D Chart as of February 14th, 2025 (Source: TradingView)
The US dollar index (DXY) retreated, reflecting a decline in demand for the safe-haven currency as risk appetite improved. A pullback in US Treasury yields further added to the dollar’s weakness, making the euro more attractive to investors seeking higher returns in alternative assets.
Technical indicators suggest that EUR/USD remains in bullish territory, with the pair breaking through key resistance levels. If the current momentum continues, the euro could challenge further upside barriers, though profit-taking and shifting rate expectations could introduce volatility.
Despite the euro’s rally, analysts caution that external risks, including geopolitical tensions and shifts in global trade policies, could influence market sentiment. Additionally, any hawkish signals from the Fed in upcoming statements could trigger renewed demand for the dollar, capping EUR/USD’s upside potential.
For now, the pair remains in focus as traders watch for additional catalysts, including upcoming economic data from both the US and eurozone. If the ECB maintains its hawkish rhetoric and the Fed signals a softer stance, EUR/USD could extend its gains, solidifying its recent breakout.
