• EUR/USD advances despite a cautious ECB stance and unchanged rates.
• Energy-driven inflation risks complicate the Eurozone outlook.
• The US Dollar softens amid mixed US data and steady Fed expectations.

EUR/USD trades around 1.1690 on Thursday at the time of writing, up 0.11% on the day, after hitting a three-week low at 1.1655 earlier in the day.

The pair benefits from a weaker US Dollar (USD), as mixed economic indicators are weighing on the Greenback, notably US annualized Gross Domestic Product (GDP) growth coming in at 2% in the first quarter, below expectations of 2.3%, although significantly higher than the previous reading of 0.5%.

At the same time, inflation measured by the Personal Consumption Expenditures (PCE) Price Index reached 3.5% YoY in March, confirming persistent price pressures, while Initial Jobless Claims fell to 189K from a revised 215K in the previous week, pointing to continued resilience in the labor market. This mixed backdrop is maintaining uncertainty around the timing of the Federal Reserve’s (Fed) next policy moves.

Fed Chair Jerome Powell reiterated on Wednesday that the current policy stance remains appropriate, while highlighting that geopolitical tensions in the Middle East are adding to global uncertainty.

On the European side, the European Central Bank (ECB) left its key interest rates unchanged on Thursday, with the main refinancing rate at 2.15%, the marginal lending facility at 2.4%, and the deposit facility at 2%. The central bank noted that incoming data have been broadly in line with its projections, while warning that upside risks to inflation and downside risks to growth have intensified.

ECB President Christine Lagarde emphasized a data-dependent, meeting-by-meeting approach, noting that policymakers extensively debated a potential rate hike before unanimously deciding to hold rates steady. She also highlighted that rising energy prices could weigh on investment from both firms and households, amid elevated uncertainty and weakening confidence.

Although long-term inflation expectations remain well anchored around the 2% target, short-term expectations have risen significantly, particularly due to geopolitical tensions. This context reinforces the ECB’s cautious stance, as it prefers to wait for greater clarity before adjusting its monetary policy.