USD faces pressure as ECB easing boosts EUR, Trump targets Fed policy

The US dollar faced multiple headwinds on Tuesday as European Central Bank easing measures unexpectedly strengthened the euro while political pressure on Federal Reserve independence intensified. ECB's dovish stance paradoxically supported EUR/USD through improved risk sentiment and capital flows into European assets. Former President Trump's renewed criticism of Fed policy added uncertainty to dollar positioning, with traders reassessing rate cut expectations for 2025. US labor market data remains in focus, with upcoming releases expected to significantly influence Fed decision-making. The dollar index (DXY) retreated 0.2% to 104.50 as markets digest conflicting signals from monetary policy divergence and political developments. Trade tensions continue to weigh on sentiment, particularly affecting commodity currencies and emerging market pairs. Near-term dollar direction hinges on Friday's employment report, with markets pricing in potential Fed rate adjustments based on labor market strength.