EUR/USD Extends Losses as Fed’s Hawkish Stance and Political Uncertainty Weigh
EUR/USD continued its downward trajectory on Wednesday, hitting a four-session low of 1.03825 as Fed rate expectations and European political uncertainty pressured the pair. The dollar strengthened following the Fed’s statement, which was deemed slightly hawkish, reinforcing expectations that U.S. rates will stay elevated longer than previously anticipated. This sent U.S. Treasury yields higher, tightening German-U.S. spreads, and weighing on EUR/USD. Meanwhile, drops in equities and gold further fueled safe-haven dollar demand, pushing the pair down -0.33% late in the session.
Technically, EUR/USD remains in a bearish structure. The pair failed to hold support at 1.0405 and extended its decline below 1.03825, leaving it vulnerable to further downside. Key support is now at 1.0350, with additional downside risk toward 1.0300 should bearish momentum persist. Resistance sits at 1.0425, followed by the January 27 high near 1.0480. The breakdown in the correlation between EUR/USD and rate differentials suggests investors are increasingly focusing on trade risks and European political instability, which could keep downward pressure on the euro.
Upcoming data releases will be crucial for EUR/USD’s direction. Eurozone January consumer confidence and Q4 GDP reports will provide insight into the region’s economic health, while U.S. Q4 GDP, its PCE component, and weekly jobless claims will influence Fed policy expectations. If European data disappoints and U.S. economic resilience persists, EUR/USD could remain under pressure, with bears targeting the 1.0350 level. However, should political tensions ease and trade concerns subside, the pair could see a relief rally, aligning with the tightening rate spreads.