EUR/USD Holds Firm as Dollar Retreat Meets ECB Rate Support

Quick Take

EUR/USD is still holding up well, but the move is not a clean euro breakout. Reuters reported on 6 May that the euro rose 0.4% to $1.1735 as the dollar softened on stronger hopes for a U.S.-Iran deal and a sharp yen move linked to intervention speculation. That helped the euro, but the pair is still trading inside a market where both the Fed and ECB are being forced to manage inflation risk carefully.

What Is Supporting EUR/USD

The first support comes from the dollar side. The U.S. dollar has lost part of its earlier safe-haven premium as peace-deal hopes improved, making it easier for EUR/USD to stay firm. Reuters also reported that the euro had already been trading around $1.17005 on 5 May, showing that the pair was holding relatively steady before the latest dollar weakness.

The second support comes from the ECB side. Euro zone wage growth has not accelerated since the Iran war started, with the ECB wage tracker still pointing to 2.6% negotiated wage growth in 2026, giving policymakers some comfort that wage pressure is not yet breaking higher. This helps the euro because it leaves the ECB with room to stay focused on inflation without looking forced into panic tightening.

Why the Euro Is Not Getting a Free Ride

The euro side is not completely clean. Reuters reported that euro zone services activity contracted in April for the first time in almost a year, hit by weak demand and weaker export business as the Middle East war weighed on consumer-facing sectors. At the same time, prices charged by service providers rose at the fastest pace in two years and input costs hit a three-year high, which means the eurozone is facing weak activity and sticky costs at the same time.

That combination is important for EUR/USD. If the ECB becomes more hawkish because inflation pressure is rising, the euro can gain rate support. But if that inflation pressure comes together with weaker growth, investors may hesitate to chase the euro too aggressively. In other words, ECB rate support is helping EUR/USD, but the eurozone macro story is still mixed.

Why the Dollar Can Still Push Back

The Fed is still the main reason EUR/USD may struggle to break higher smoothly. The Federal Reserve left rates unchanged on 29 April, keeping the federal funds target range at 3.50%–3.75%, and its statement continued to highlight elevated inflation and uncertainty around the outlook.

Reuters also reported that traders now expect no Fed cuts this year, with markets even pricing a higher chance of a rate hike in the first half of 2027 after the April Fed decision. That makes it harder for EUR/USD to build a one-way rally, because U.S. rate support has not disappeared.

The Next Test Is U.S. Jobs Data

The next important driver is the U.S. labour market. Reuters reported that the upcoming employment report will test whether the economy is resilient enough to keep the Fed on hold or whether a softer labour market could revive the case for rate cuts. Economists polled by Reuters expect 62,000 jobs to be added, with unemployment unchanged at 4.3%.

For EUR/USD, this makes the near-term setup very data-sensitive. A weaker jobs report could put more pressure on the dollar and help EUR/USD extend higher. A stronger report would likely reinforce the idea that the Fed can stay patient, which could cap the pair around recent highs.

Near-Term View

My near-term view is that EUR/USD can stay supported while the dollar’s safe-haven premium fades and the ECB remains more alert to inflation than growth alone. But the pair needs a clearer Fed-cut story or weaker U.S. data to turn this support into a stronger upside breakout.

Conclusion

The main point is simple: EUR/USD has support, but not full freedom. Dollar softness and ECB rate expectations are helping the pair, while Fed caution and upcoming U.S. jobs data are keeping traders from treating the move as a clean bullish trend.