With both central banks taking a data-dependent approach, monetary policy divergence may not drive EUR/USD in the weeks ahead. Instead, FX may take its cue from risk appetite which, in turn, may hinge on whether the data in the US and elsewhere supports a global ‘soft landing’.

The EUR has faced some cyclical challenges, but history suggests that downside data surprises are unlikely to persist to the same extent as they have over the last few months. The EUR could also benefit from an improving broader macro backdrop in the Eurozone. For example, there has been a rapid turnaround in the current account position, which dipped into deficit territory in 2022 but is now improving sharply.