Euro hits 3.5 year high, ECB closing in on inflation target

The euro is lower on Tuesday. In the North American session, EUR/USD is trading at 1.1455, down 0.43%. The euro surged 1.09% a day earlier, taking advantage of broad US dollar weakness.

ECB's Kazimir: Inflation approaching 2% target

ECB member Peter Kazimir said on Tuesday he was confident that the ECB would hit its 2% inflation target in the next few months. At the same time, Kazimir cautioned against projecting where monetary policy was headed because of "today's volatile and often chaotic conditions". The economic landscape was dominated by "uncertainty" and the US tariffs had added to the uncertainty and eroded confidence.

Earlier this month, the ECB projected that inflation would fall to 2% in 2026, more hawkish than Kazimir's forecast. However, US President Trump's tariffs have triggered massive shifts in the financial markets since the ECB inflation forecast and the central bank will have to reassess its inflation projection in the new environment of a global trade war.

The tariffs and European counter-tariffs are an upside risk for inflation, but the euro has soared 6% against the US dollar in April and energy prices have fallen, which will push inflation lower.

There are no key releases out of the US today, but we'll hear from three FOMC members later today. The markets have priced in a rate cut in May at 10%, with a 62% probability of a rate cut in June.

Trump vs. Powell

The financial markets tumbled this week in response to Trump's harsh statements against Federal Reserve Chair Jerome Powell. Trump said Powell needed to lower rates right away and that he was considering firing Powell. This has eroded confidence in the US financial system and the US dollar has sustained sharp losses this week against most of the major currencies, including the euro.

• EUR/USD has pushed below support at 1.1498 and is testing support at 1.1480
• There is resistance at 1.1526 and 1.1544