EUR/USD edges lower as US Retail Sales beat forecasts, Warsh calls for new inflation framework

• EUR/USD trades lower as USD steadies after recent weakness.
• US Retail Sales come in stronger than expected, driven by higher gasoline prices.
• US-Iran tensions and the ceasefire deadline keep market sentiment cautious.

EUR/USD trades under pressure on Tuesday as the US Dollar (USD) steadies after recent weakness, with upbeat US economic data and weaker Eurozone sentiment adding further downside pressure on the Euro (EUR). However, the pair lacks follow-through selling and remains near recent highs, as market sentiment stays cautious amid uncertainty surrounding potential US-Iran peace talks.

At the time of writing, EUR/USD is trading around 1.1755. Meanwhile, the US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is hovering around 98.32.

US data released earlier in the day showed that headline Retail Sales rose by 1.7% MoM in March, beating expectations of 1.4% and accelerating from February’s 0.7% increase driven largely by a sharp increase in gasoline prices amid escalating tensions with Iran.

The Retail Sales Control Group, which feeds into GDP calculations, increased by 0.7%, while Retail Sales excluding Autos rose by 1.9%, both above expectations. At the same time, labor market data showed strength, with the ADP Employment Change 4-week average rising to 54.8K from 39K.

Overall, the latest data suggest the US economy remains resilient, despite ongoing geopolitical uncertainty, which could force the Federal Reserve (Fed) to maintain its current policy stance for longer, particularly with Oil-driven inflation risks still in focus.

Traders are also digesting comments from Kevin Warsh, the Fed Chair nominee, who called for a new inflation framework and a “regime change” in policy, while criticizing the Fed for holding onto its forecasts for too long.

However, attention remains firmly on US-Iran developments ahead of the ceasefire deadline on Wednesday. In an interview with CNBC, US President Donald Trump reiterated that he does not intend to extend the current truce, stating that the US is in a “very strong negotiating position” and is “ready to go militarily” if talks fail, highlighting the risk of renewed escalation.

Prospects for a second round of peace talks expected in Pakistan remain uncertain following the weekend flare-up in the Strait of Hormuz, which has dampened expectations that negotiations will resume, with Iran yet to confirm its participation.