The euro is struggling to find direction against the US dollar, with market participants increasingly skeptical about the European Central Bank’s ability to raise interest rates further this year. A new analysis from Scotiabank suggests the EUR/USD pair will remain locked in a range in the near term, as conflicting monetary policy signals and mixed economic data prevent a decisive breakout.
ECB Rate Hike Doubts Weigh on the Euro
The single currency has underperformed against both the dollar and the British pound after a series of softer-than-expected economic releases from the eurozone. Weaker industrial production, slowing services activity, and moderating inflation in key member states like Germany and France have fueled speculation that the ECB may soon pause its tightening cycle. Markets are now pricing in a lower probability of additional rate increases, narrowing the interest rate advantage that had previously supported the euro.
Scotiabank’s Range-Bound Forecast
Scotiabank’s foreign exchange strategy team notes that the EUR/USD has been consolidating after recent volatility. The pair lacks strong directional momentum because of the tug-of-war between the ECB’s cautious stance and the Federal Reserve’s “higher-for-longer” narrative. Key support levels are near recent lows, while resistance sits at the upper end of the consolidation zone. A break above or below these levels would require a major catalyst, such as a clear shift in central bank policy guidance or a surprise economic data print.
Wider Economic Divergence
The analysis highlights the growing divergence between the US and eurozone economies. The US has shown surprising resilience in consumer spending and labor markets, giving the Fed room to keep rates elevated. Meanwhile, the eurozone faces headwinds from weak external demand—particularly from China—and lingering energy price volatility. This imbalance continues to underpin the dollar and limit any sustained euro rallies.
The range-bound environment is likely to persist until a significant new development resets market expectations. For now, traders are buying near support and selling near resistance, but Scotiabank warns that range markets can experience sudden breakouts. Investors should stay alert to upcoming inflation reports and central bank meeting minutes, which could provide the trigger for a directional move.
