Original article by Pablo Piovano – FXStreet
URL: https://www.fxstreet.com/news/eur-usd-tumbles-on-hawkish-powell-strong-us-gdp-figures-smash-euro-202507302330
Title: EUR/USD Plunges as Robust US GDP and Hawkish Fed Stance Pressure the Euro
The EUR/USD currency pair faced a sharp decline in its value following a combination of strong US GDP data and assertive policy remarks from Federal Reserve Chairman Jerome Powell. The euro dipped significantly against the US dollar on Tuesday, as market participants reacted negatively to the prospect of prolonged elevated interest rates in the United States. The pairing dropped to its lowest point in weeks, indicating heightened investor confidence in the US economy and the Federal Reserve’s firm stance against inflation.
At the core of this market reaction are the latest US economic data releases and Federal Reserve policy comments, both of which underscore growing divergence in the monetary policy trajectories between the Eurozone and the United States.
Key Developments Behind the EUR/USD Drop:
– Federal Reserve Chairman Jerome Powell reaffirmed the Fed’s hawkish stance, indicating that interest rates are likely to remain higher for longer.
– Q2 US Gross Domestic Product (GDP) growth exceeded expectations, affirming continued economic resilience and encouraging further dollar strength.
– Eurozone economic data remained comparatively sluggish, adding to the strength of the bearish trend in the euro-dollar cross.
US GDP Surpasses Expectations
The US economy expanded at a pace of 2.7 percent on an annualized basis in the second quarter of the year, according to the latest figures released by the Office of Economic Analysis. Markets had forecast a more moderate growth rate of approximately 2.3 percent. The better-than-expected data highlighted a steady post-pandemic recovery in consumer spending, corporate investment, and labor market conditions in the world’s largest economy.
Major GDP highlights:
– Consumer spending saw a rise of 1.9 percent compared to expectations of 1.3 percent.
– Private investment grew by 3.2 percent, with notable contributions from both the housing and manufacturing sectors.
– Government spending remained steady, contributing modestly to overall GDP growth.
– Net exports and inventory accumulation were minor contributors but still within growth-supportive territories.
The market reacted quickly to the release of this GDP data. The US dollar strengthened across the board, with demand increasing among investors who interpreted the strong economic performance as a sign the Federal Reserve would maintain its restrictive monetary policy longer than previously anticipated.
Hawkish Tone from the Fed
Equally important in shaping Tuesday’s market sentiment were Powell’s statements during his semiannual testimony before the US Senate Banking Committee. Powell emphasized persistent inflationary pressures and acknowledged that although progress had been made, the Federal Reserve was not yet at its target.
Powell’s comments indicated:
– Interest rates may need to remain high for an extended period to ensure inflation continues its downward trend toward the Fed’s 2 percent target.
– The central bank remains data-dependent, but current data support a continued restrictive policy stance.
– Markets should not expect rate cuts in the near term, as premature easing could jeopardize recent progress on inflation.
These statements reinforced the Fed’s hawkish posture and heightened expectations that restrictive monetary conditions would persist well into the following quarters. The consequence was a broad-based rally in the US dollar, as current interest rate and yield differentials heavily favored dollar-denominated assets.
Impact on EUR/USD Pair
The immediate impact on the EUR/USD exchange rate was a swift and pronounced downside move. The pair, which had been trading near the 1.0850 region prior to the release of US GDP figures and Powell’s testimony, quickly dropped below the 1.0800 mark and continued trending downward through the North American trading session.
Detailed movements of the pair:
– High of the day: 1.0875 (early session strength)
– Low of the day: 1.0750 (post-data and post-testimony
Read more on EUR/USD trading.