The EUR/USD pair saw a notable decline to 1.0850 during Friday's European session, as market sentiment took a cautious turn. This movement came in response to statements from Fed policymakers who signaled their intention to maintain a restrictive monetary policy for a prolonged period. This hawkish stance provided some relief to the US Dollar, which had been weakened by a dip in US inflation figures as reflected in April's CPI report released on Wednesday:

The drop in EUR/USD appears to be driven by the US Dollar’s recovery rather than any fundamental weakness in the Euro. Despite the corrective movement, the Euro retains its appeal, buoyed by the (ECB officials' cautious approach toward extending the rate-cut cycle0. ECB Board member Isabel Schnabel highlighted the uncertainty beyond the anticipated June rate cut, pointing out that the final stages of the disinflation process are particularly challenging. She warned of potential inflation risks if rate cuts were implemented prematurely.

The DXY's recovery was underpinned by a slew of comments from Fed officials on Thursday, who reinforced the need to keep interest rates steady for an extended period. New York Fed Bank President John Williams emphasized that the current monetary policy stance remains appropriate, citing the lack of compelling economic indicators to warrant a change. Williams expressed skepticism about immediate inflation progress towards the 2% target, further reinforcing the Fed's cautious approach.

Adding to the narrative, the US Department of Labor reported a rise in initial jobless claims to 222K for the week ending May 10, slightly above the consensus of 220K but below the previous week's eight-month high of 232K. This uptick in jobless claims reflects a cooling labor market, contributing to the broader economic picture that the Fed is monitoring closely.

On the other side of the Atlantic, the British Pound remained stable during Friday's American session, following a fresh monthly high of 1.2700 on Thursday. The GBP/USD pair struggled to maintain its upward momentum as investors turned their attention to the upcoming UK CPI data for April, scheduled for release on Wednesday. This data is expected to provide critical insights into the Bank of England's future interest rate decisions. Investors are divided on whether the BoE will begin cutting rates in June or August:

BoE Governor Andrew Bailey's comments post-March CPI data release hinted at a significant drop in inflation, aligning with the central bank’s forecasts. Bailey noted the unique factors affecting UK household energy pricing, which he expects to contribute to a strong reduction in inflation figures.