EUR/USD edged up on Thursday, ending a two-day fall, and was trading near 1.1883, about 0.10% higher. The US Dollar Index was around 96.80, close to two-week lows, as markets awaited US CPI data due on Friday.
US data showed Initial Jobless Claims fell to 227K from 232K, but were above the 222K forecast, while Continuing Claims rose to 1.862 million from 1.841 million. January Nonfarm Payrolls increased by 130K versus a 70K forecast, and the Unemployment Rate eased to 4.3% from 4.4%.
Fed Policy And Dollar Outlook
Markets are pricing about 50 basis points of Fed easing in the second half of the year. Kansas City Fed President Jeffrey Schmid said inflation is close to 3% and that policy should remain restrictive.
In the Eurozone, focus turns to Q4 preliminary Employment Change (QoQ) and GDP figures due on Friday. A Reuters poll dated February 9-12 found 66 of 74 economists expect the ECB deposit rate to stay at 2.00% through 2026, with no change expected before 2027.
The euro is used by 20 EU countries. In 2022 it made up 31% of global FX turnover, averaging over $2.2 trillion daily; EUR/USD accounts for about 30% of all FX transactions.
We are seeing a very different picture today, February 12, 2026, compared to the market sentiment back in 2025. The US Dollar is no longer struggling for traction; in fact, the Dollar Index (DXY) is trading robustly around 104.50, a stark contrast to the 96.80 level seen last year. This strength is largely driven by a Federal Reserve that has held firm on interest rates.
Derivatives Positioning And Risk Factors
The expectation for 50 basis points of easing that we saw priced in during 2025 never materialized, as inflation proved more persistent than anticipated. January’s Consumer Price Index (CPI) report, released yesterday, showed core inflation holding at 2.8%, keeping pressure on the Fed to maintain its restrictive stance. The current Fed funds rate sits in the 4.75% to 5.00% range, making the dollar an attractive currency for yield.
This contrasts with the situation in the Eurozone, where economic momentum has been sluggish. The final Q4 2025 GDP figures confirmed a meagre 0.1% quarterly growth, and the European Central Bank has been more cautious than the Fed, holding its deposit rate at 3.25%. This policy divergence is a key factor weighing on the EUR/USD, which is currently trading near 1.0550, far below the 1.1883 handle discussed this time last year.
For derivative traders, this environment suggests that betting against the Euro remains a viable strategy. Buying EUR/USD put options, particularly those with strike prices below 1.0500, could offer a way to profit from further downside driven by the interest rate differential. The recent January Nonfarm Payrolls report in the US, which added a solid 195,000 jobs, further solidifies the case for a stronger US economy and a robust dollar.
Given the policy differences, selling out-of-the-money call options on EUR/USD could be an effective strategy to generate income, as a significant rally seems unlikely without a major shift from the Fed or ECB. Traders should watch for any signs of weakening in US labor data or a surprising uptick in Eurozone inflation, as these could disrupt the current trend. However, the path of least resistance appears to be a weaker Euro for the foreseeable future.
