• The Euro resumes its decline following strong US Retail Sales data
• The divergence between the ECB and the Fed's rate outlook is expected to weigh on the Euro.
• Geopolitical concerns are an additional support for the safe-haven USD.

The Euro’s mild upside bias seen during Monday’s European session has been hammered during US trading. The release of better-than-expected US Retail Sales has pushed US Treasury yields to fresh mid-term highs, bringing the US Dollar up with them.

Data released by the US Commerce Department revealed that retail consumption increased by 0.7% in March from 0.9% in February, beating expectations of a 0.3% rise. Excluding autos, total retail and food sales increased 1.1%, their best reading since January 2023.

Fed and ECB’s monetary divergence is weighing on the Euro

These figures highlight the strong US economic outlook and endorse the view that the Fed will have to keep rates at high levels for a longer time. This is underpinning demand for the USD.

The Eurozone context is the polar opposite, with inflation trending lower and the economy stalling. This has prompted the ECB to hint towards interest rate cuts, probably in June, putting the European Central Bank in the pole position for monetary easing and weighing on demand for the Euro.

Beyond that, investors’ concerns about an escalation of the Middle East conflict, as Israel weighs the options to retaliate from Iran’s missile attack is an additional support for the safe-haven US Dollar.