EUR/USD traded near 1.1800 on Thursday, little changed after a brief dip following comments from ECB President Christine Lagarde. She told the European Parliament that inflation is moving towards the 2% target in the medium term.
Lagarde said food inflation should keep easing and settle slightly above 2% by late 2026. She added that the ECB remains data-dependent and will stay agile.
Eurozone Sentiment And Inflation Outlook
Eurozone surveys showed a mixed picture. The Economic Sentiment Indicator fell to 98.3 in February from a revised 99.3 in January, while Consumer Confidence improved to -12.2 but stayed negative.
Markets are now focused on preliminary German CPI figures due on Friday. This data may shape near-term expectations for Eurozone price trends.
The US Dollar strengthened, with the Dollar Index near 97.70. Markets assessed ongoing US trade policy uncertainty after a US Supreme Court decision challenged parts of President Donald Trump’s tariff framework, while expecting Washington to maintain trade agreements.
Traders largely expect the Federal Reserve to leave rates unchanged at upcoming meetings. Weekly Jobless Claims due later may offer more detail on US labour market conditions.
One Year Ago Versus Today
Looking back a year ago, we saw the EUR/USD holding firm around 1.1800 as the European Central Bank expressed confidence that inflation was under control. Today, the situation has evolved, with the pair now trading near 1.0750 as central bank policies have diverged more than we anticipated back in 2025. This interest rate differential is now the dominant factor for traders to watch.
The optimism from the ECB in early 2025 has met the reality of stubborn price pressures. With recent Euro Area inflation figures for January 2026 coming in at a persistent 2.5% and German CPI even higher at 2.8%, the market is pricing out any imminent rate cuts. This suggests that options strategies betting on a range-bound or weaker Euro could be favorable, as the ECB is likely to hold its main rate at 4.25% for longer than previously expected.
In the United States, the focus has shifted from the trade policy uncertainty of 2025 to a “higher for longer” interest rate narrative. The latest US Consumer Price Index data showed inflation holding at 3.1%, giving the Federal Reserve little reason to ease its policy. With the Fed Funds Rate at a firm 5.50%, the significant yield advantage of the dollar continues to attract capital and pressure the EUR/USD.
This policy divergence is creating clear opportunities in the volatility markets. We have seen implied volatility on one-month EUR/USD options climb to 8.2%, a notable increase from the subdued levels observed for much of last year. This environment makes strategies like straddles or strangles appealing, allowing traders to profit from a significant price move in either direction around key data releases.
In the coming weeks, we will be closely watching the upcoming Eurozone flash manufacturing PMI figures and the next US jobs report. Last year’s mixed economic sentiment has given way to a clearer picture of sluggish European growth versus a more resilient US economy. Any data that challenges this narrative will provide the next major catalyst for the currency pair.
