EUR/USD reached an 8-week high near 1.1700, driven largely by the Federal Reserve’s 25 basis point rate cut. This move led to a 0.59% increase on Wednesday, as traders sold the Dollar in light of the Fed’s dovish stance.
Fed Chair Jerome Powell stated that future policy moves will rely on economic data, signalling a neutral policy. The Fed’s decision to cut rates was supported by most, though three dissenters preferred different approaches.
Dollar Index and Economic Predictions
The Dollar Index dropped by 0.58% to 98.68, and predictions suggest the fed funds rate will be around 3.4% next year, implying a possible additional cut. Meanwhile, the Eurozone had no significant updates, but ECB members expressed confidence in reaching a 2% medium-term inflation target.
EUR/USD is consolidating between 1.1650 and 1.1700 for the sixth session, with bullish momentum indicated by the Relative Strength Index. Beyond this, breaking below 1.1650 could see the Euro fall further, pushing past various support levels.
The Euro remains the second most heavily traded currency, with a 31% share of global exchange transactions in 2022. Its strength is influenced by ECB policies, interest rates, inflation, economic data, and trade balances.
The Federal Reserve’s decision to cut rates has shifted the landscape, signaling that the US dollar’s period of strength is likely over for now. We see a clear divergence opening up between a dovish Fed, which is now on hold, and a European Central Bank that sounds confident about its own policy. This environment favors being long the Euro against the dollar in the coming weeks.
Market Trends and Trading Strategies
This pivot from the Fed didn’t happen in a vacuum, as we watched US inflation metrics cool throughout 2025 after ending 2024 at 3.1%. The ECB, on the other hand, is dealing with more persistent price pressures that were still at 2.4% at the end of last year, giving them little reason to consider cutting rates. Derivative traders should consider strategies that profit from the EUR/USD exchange rate climbing, such as buying call options with strike prices above the current 1.1700 level.
Powell’s emphasis on downside risks to employment is a key signal for continued dollar weakness. We have already seen initial jobless claims statistics from November 2025 tick up to over 230,000, supporting the Fed’s cautious view. This makes shorting the US Dollar Index (DXY) an attractive position, potentially through put options or futures contracts.
For the EUR/USD pair, the immediate test is whether it can hold above the 1.1700 mark. A decisive break and close above this level could see a rapid move toward the 1.1800 handle and even the year-to-date highs near 1.1918. We believe using simple vanilla call options is a low-risk way to position for this potential breakout.
This policy pause feels very similar to the “mid-cycle adjustment” we saw back in 2019, where the Fed cut rates three times and then held steady for more than six months. During that period, the dollar generally softened against its peers. This historical precedent suggests that the current dollar weakness could persist into the early months of 2026.
Beyond the dollar, we should note the Euro’s exceptional strength against the Japanese Yen. With the Bank of Japan showing no signs of abandoning its ultra-loose monetary policy, going long EUR/JPY may offer an even stronger trend. This trade capitalizes on the policy divergence between the steady ECB and the persistently dovish BoJ.
