Euro holds above $1.11 as investors digest key data

The euro held firm above the $1.11 mark on Tuesday, attempting to claw back some ground after suffering a sharp 1.5% decline on Monday, as investors digested a mix of stronger-than-expected German economic sentiment and a surprise cooling in US inflation.

Euro holds above $1.11 as investors digest key data

Germany’s closely watched ZEW Economic Sentiment Index surged to 25.2 in May, well above market expectations of 11.9, signaling growing optimism about the economic outlook over the next six months. The improved sentiment was largely driven by the formation of a new federal government, progress in resolving key global trade disputes, and early signs of inflationary pressures stabilizing across the eurozone. Meanwhile, the US dollar softened after data showed consumer price inflation eased more than anticipated to 2.3% in April, marking the lowest annual rate since February 2021 and slipping below forecasts of 2.4%.

Core inflation remains subdued

Core inflation also remained subdued, holding steady at a four-year low of 2.8% year-over-year, reinforcing expectations that the Federal Reserve could pivot toward a more dovish stance in the coming months. Markets also continued to weigh the potential economic effects of the recently announced US-China tariff rollback, which temporarily reduces levies to 30% and 10% for a 90-day period as part of renewed trade negotiations. However, analysts cautioned that while the tariff relief offered a short-term reprieve, lingering geopolitical tensions and uncertainty over the sustainability of the truce kept sentiment fragile.