EUR/USD is trading slightly higher near 1.1325 during European trading hours on Monday (05/05), strengthening after hitting a three-week low of 1.1265 late last week. The major currency pair strengthened as the US dollar (USD) amid ongoing uncertainty over the United States (US)-China trade relations and as investors remained cautious ahead of the Federal Reserve (Fed) monetary policy announcement on Wednesday.

The US Dollar Index (DXY), which tracks the greenback against a basket of six major currencies, fell near 99.80 but traded within Friday's range.

Over the weekend, US President Donald Trump expressed confidence while speaking to reporters that bilateral trade deals with some of his trading partners could be announced this week. However, he confirmed that he would not have any dialogue with Chinese leader Xi Jinping this week, but did not deny that trade discussions were ongoing between officials from the two countries.

While the announcement of a bilateral trade deal by Washington suggests that concerns over US President Trump's proposed tariffs have now peaked, the long-running standoff between the world's two largest powers will continue to keep investors on their toes.

This week, the main trigger for the US dollar will be the Federal Reserve's (Fed) monetary policy meeting, which will be announced on Wednesday. The Fed is widely anticipated to leave interest rates unchanged in the range of 4.25%-4.50%. Hence, investors will be watching the monetary policy statement and Fed Chair Jerome Powell's press conference for cues on the interest rate outlook.

A better-than-expected Nonfarm Payrolls (NFP) data for April and high consumer inflation expectations in the face of Donald Trump's tariff policies will be the limiting factors for the Fed to cut interest rates.

Source: FXStreet