Investors Still Bet on a Weaker Dollar

The U.S. Dollar Index (DXY) rose by 0.27% to 99.38 points this week, while the EURUSD slipped by 0.10% to 1.13530. The currency market saw heightened volatility as U.S. president Donald Trump once again injected uncertainty.

The EURUSD climbed to 1.13600 last Wednesday, but strong U.S. economic data on Thursday bolstered the Dollar. May PMI business activity indicators came in above expectations, strengthening the Greenback and pulling the EURUSD down to 1.12650. At that point, it looked like a breakdown below 1.12600 was imminent, with the pair potentially heading toward the 1.09500–1.10500 zone.

However, on Friday, Trump unexpectedly announced new 50% tariffs on the European Union starting June 1, which reversed the Dollar’s momentum. The EURUSD rebounded to 1.13700 and closed the week at 1.13630. Over the weekend, following a call with European Commission President Ursula von der Leyen, Trump agreed to delay the tariff hike until July 9. This brought another surge in EURUSD to 1.14180 on Monday, driven by relief. But that move quickly faded, and the EURUSD returned to its main target range of 1.12600–1.13600. The S&P 500 index also rose by 1.6%, reflecting broader market relief.

Despite the return to the range, underlying sentiment points to continued Dollar strength, with the EURUSD likely to retest the lower edge at 1.12600. Yet large investors appear to remain skeptical of further Greenback gains. They sold another $2.6 million worth of shares in the WisdomTree Bloomberg US Dollar Bullish Fund (USDU) — the same amount as the previous week — indicating sustained bearish positioning against the Dollar. This trend, following larger outflows in prior weeks, suggests institutional sentiment does not support a lasting Dollar rally. If the EURUSD manages to break above 1.13600–1.13700 again, it could trigger a push toward the extreme target zone at 1.16500–1.17500. To avoid that outcome, the pair needs to break and hold below 1.12500–1.12600.

This week’s economic calendar doesn’t offer a clear directional catalyst. The FOMC Minutes will be released on Wednesday; any shift away from a hawkish tone would be supportive for the Dollar and could drive the EURUSD back to 1.12600. However, Thursday’s release of the second estimate for Q1 U.S. GDP may temper that strength — another confirmation of the 0.3% QoQ growth slowdown would likely have a neutral effect. On Friday, attention will turn to April’s Personal Consumption Expenditures (PCE) price index, the Fed’s preferred inflation metric. A decline in core PCE could hurt the Dollar.

Overall, the macroeconomic outlook appears largely neutral, keeping the EURUSD confined within its current range unless a clear catalyst emerges.