EUR/USD rose for a second day but gave up part of its earlier gains. It stayed above 1.1800 in the first half of the European session on Monday.
Germany’s IFO Business Climate Index increased to 88.6 in February from 87.6 in January. The Current Assessment Index rose to 86.7 from 85.7.
Euro Rises Despite Policy And Trade Uncertainty
The figures had little effect on the euro, amid uncertainty about ECB President Christine Lagarde’s tenure and fresh trade tensions. On Friday, US President Donald Trump set a new global levy of 15% after a Supreme Court ruling against his reciprocal tariffs.
The European Parliament’s trade chief said the EU will propose freezing the ratification process of the US-EU trade deal. This would remain in place until the Trump administration provides details of its trade policy.
The developments pressured the US dollar and supported EUR/USD. Markets also priced in at least two further 25 bps rate cuts by the Federal Reserve, which added to USD weakness.
We are seeing the US dollar weaken, which is giving EUR/USD some support in the market. This dollar softness is largely because recent data, like the final Q4 2025 US GDP growth report which came in at a sluggish 1.2%, is fueling talk of Federal Reserve rate cuts. The market is increasingly betting on a dovish pivot from the central bank.
Fed Cut Bets Keep Pressure On The Dollar
Looking at the derivatives market, the CME FedWatch Tool shows a greater than 70% probability of a 25 basis point rate cut at the Fed’s upcoming March 2026 meeting. This expectation is keeping pressure on the dollar and is the primary force propping up the EUR/USD pair. We believe this makes shorting the dollar an attractive underlying trade.
This environment feels similar to the trade uncertainties we saw back in 2020, which also weakened the dollar. Today, the friction is over the EU’s Carbon Border Adjustment Mechanism, leading to renewed “Sell America” whispers among traders. This recurring theme of trade disputes continues to be a headwind for the US currency.
However, the Euro itself is not showing significant strength, which limits the upside for the pair. The latest German IFO Business Climate index for February 2026 came in at 90.2, just missing expectations and failing to provide any real inspiration. This suggests that any gains in EUR/USD are more about dollar weakness than euro confidence.
Given this, traders should consider buying near-term EUR/USD call options, perhaps with a strike price around 1.1550. This strategy allows for participation in any further upside driven by Fed rate cut speculation. The limited premium paid for the option defines the maximum risk should the Euro’s sluggishness cap the rally.
For those more cautious about a significant rally, selling out-of-the-money put options with a strike near 1.1300 could be a viable strategy. This approach collects premium from the view that while the Euro’s own economic data may limit gains, the weak dollar sentiment should prevent a significant price drop in the coming weeks.
