EUR/USD Forecast: Euro retreats from highs with US Inflation in focus 

EUR/USD recovery was capped at the 1.1700 area on Monday, and the pair retreated to the mid-range of the 1.1600s, as bullish comments by the New York Federal Reserve’s (Fed) President John Williams eased market concerns about the central bank’s independence.

Williams said on Monday that interest rates have moved “the modestly restrictive stance closer to neutral” and that he expects a healthy economy in 2026. Williams also stated that he sees monetary policy well-positioned to support the stabilisation of the labour market, curbing hopes of interest rate cuts in the coming months.

Investors sold the US Dollar across the board on Monday’s early trading, after the New York Times reported that the US Government was initiating a criminal investigation against the Fed Chairman, Jerome Powell.

The action marks an escalation in an extended conflict between Trump and Powell, which puts the central bank’s independence into question and threatens the status of the US Dollar as a reserve currency. Fitch Ratings earned on Monday that the Fed’s autonomy is a key reason supporting the US economy’s AA++ credit rating.

Later on Tuesday, the focus will shift to the US Consumer Prices Index (CPI) report, which is expected to show that price pressures remain elevated above the Fed’s 2% target and that core inflation ticked up in December. Barring surprises and given the recent strong US macroeconomic data, these figures are likely to support the idea of very gradual Fed easing ahead.