The euro fell against the US dollar for a fourth day, trading below 1.1860, after a weekly high of 1.1928. Risk-averse trading outweighed stronger Eurozone data.
Eurozone GDP grew 0.3% in Q4 and 1.4% year-on-year, versus forecasts of 1.3%. Employment change was 0.2% versus 0.1% expected, with jobs up 0.6% year-on-year.
Market Sentiment And Dollar Support
Market sentiment stayed weak after comments about AI and white-collar jobs, which followed another fall on Wall Street. The cautious mood continued in Asia, helping the US dollar.
US Initial Jobless Claims fell by 5K to 227K, above the 222K forecast. Existing Home Sales dropped 8.4% in January.
Trading was subdued ahead of US January CPI data. Headline CPI is expected at 2.5% year-on-year versus 2.7% in December, while core CPI is seen at 2.5% versus 2.6%.
We recall a similar situation in February 2025 when the Euro was struggling below 1.1860, even with positive Eurozone GDP data. The market was consumed by a risk-off mood, largely fueled by fears over AI’s impact on white-collar jobs. The focus then, as it is now, was squarely on the upcoming US inflation report.
Policy Divergence And Eurusd Outlook
That fear around AI has largely subsided, as we’ve seen a greater focus on productivity gains rather than immediate mass job replacement over the last year. Instead, the market’s attention has correctly shifted back to the diverging paths of the Federal Reserve and the European Central Bank. This divergence is now the primary driver of currency movements.
Recent data shows US inflation has proven sticky, with the January 2026 Consumer Price Index (CPI) coming in at 2.9%, above the Fed’s 2% target and slowing the pace of expected rate cuts. In contrast, Eurozone inflation has cooled more quickly, hitting 2.2% in the latest reading, giving the ECB more reason to consider earlier cuts. This policy gap helps explain why EUR/USD is currently trading near 1.0750, much lower than a year ago.
This fundamental difference between the Fed’s cautious stance and the ECB’s more dovish tone suggests continued strength for the US dollar against the Euro. We see the dollar benefiting from higher relative interest rates for a longer period. Therefore, the path of least resistance for EUR/USD appears to be downwards in the near term.
Given this outlook, we should consider strategies that profit from or hedge against a falling EUR/USD. Buying put options on the Euro can provide downside protection with a defined risk. We can also look at establishing short positions in EUR/USD futures, targeting moves lower ahead of the next central bank meetings.
