EUR/USD fell on Wednesday, trading near 1.1817 and down almost 0.25%. The Euro weakened after a Financial Times report said ECB President Christine Lagarde could leave before her term ends in October 2027, with no official confirmation.
US data supported the Dollar, with Industrial Production up 0.7% in January versus 0.4% expected, and after a revised 0.2% rise in December. Durable Goods Orders fell 1.4% in December versus a 2% forecast, after a 5.4% rise in November; orders excluding Defence dropped 2.5% after a 6.6% gain, while core orders excluding Transportation rose 0.9% versus 0.3% forecast.
Dollar Momentum Builds
Building Permits rose to 1.448 million in December from 1.388 million, above the 1.40 million forecast. Housing Starts increased to 1.404 million versus 1.33 million expected, up from 1.322 million.
The Dollar Index rose to about 97.45, up nearly 0.35%, as focus turned to the FOMC January minutes. The Fed left rates at 3.50%–3.75% in a 10–2 vote; since then NFP rose 130K in January from 48K, unemployment eased to 4.3% from 4.4%, and CPI was 0.2% m/m with inflation at 2.4% y/y versus 2.7%. Markets price about 60 basis points of cuts later this year.
The date today is 2026-02-18T20:41:53.721Z.
The market is fighting the Fed, and right now, the data is on the Fed’s side. With US Industrial Production and housing numbers coming in strong, the dollar has a firm bid under it. We see this as a clear signal that the path of least resistance for the dollar is higher in the short term.
All our attention is now on the upcoming FOMC minutes for clues on where policy is heading. While inflation has cooled to 2.4%, we are watching to see how much weight policymakers place on the resilient labor market, which saw a 130K payrolls print. Any hawkish language in the minutes will challenge the market’s expectation for rate cuts.
Positioning For Fed Risk
Markets are currently pricing in around 60 basis points of rate cuts for later this year, which seems premature. We only have to look back to late 2023, when traders priced in over 150 basis points of cuts for 2024, only for strong data to force a major repricing. This historical pattern suggests the market may be getting ahead of itself once again.
On the other side of the trade, the Euro is facing its own headwinds with uncertainty around the ECB’s leadership. This political risk in Europe provides another reason for EUR/USD to trend lower, currently trading around 1.1817. The dollar’s strength combined with the euro’s weakness creates a powerful downward pressure on the pair.
For the coming weeks, we believe the best approach is to position for potential dollar strength and euro weakness. Buying put options on the EUR/USD can capture downside moves while defining risk ahead of the Fed’s minutes. Given the event risk, a bear put spread could also be an effective strategy to reduce the upfront cost of the position.
