Danske Bank’s Danske Research Team notes that EUR/USD has seen only a modest move higher, with the pair holding just above 1.16 despite falling global yields. The FOMC minutes signalled a more hawkish tilt, with most members seeing scope for further policy firming if inflation stays above target, which supports the Dollar and caps Euro gains.

Euro struggles despite softer yields

"In the euro area, final HICP inflation for April confirmed the flash estimate of 3.0% y/y with core at 2.2%, and price pressures remain largely confined to energy."

"Overall, the April inflation report supports a more cautious response from the ECB as the inflation shock is still highly contained, but it is still early days of the supply shock's propagation. "

"In the ECB space, a Reuters sources story suggests the case for a June rate hike is now "nearly sealed" as the inflation outlook shifts towards the adverse scenario. However, policymakers are likely to avoid pre‑committing to further moves, with many preferring to wait for the September projections. Even a peace deal in Iran before the meeting would not change much near term, as elevated energy prices are expected to persist."

"In the US, the FOMC minutes underlined a deeper policy split following the divided rate decision. While the Committee kept the fed funds rate at 3.5-3.75%, a majority now judge that "some policy firming would likely become appropriate" if inflation, amplified by the Iran war's impact on energy prices, remains persistently above 2%. A majority would have preferred to remove the easing bias from the statement, reinforcing a more hawkish tilt that markets will scrutinise closely."

"We have changed our Fed call and now look for two hikes coming in December 2026 and March 2027."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)