EUR\/USD has risen above 1.1750, trading around 1.1760 during Friday’s Asian session. Market participants are watching Germany\u2019s Manufacturing PMI data closely.<\/p>\n
The Euro is benefiting from policy differences between the ECB, which has maintained steady rates, and the US Federal Reserve, which is expected to cut rates by 2026. A new Fed chair could influence lower US interest rates.<\/p>\n
The FedWatch tool indicates an 85.1% probability of unchanged rates at the upcoming Fed meeting, with the likelihood of a rate cut dropping to 14.9%. The Fed lowered rates by 25 bps in December, setting the target range at 3.50%\u20133.75%.<\/p>\n
The Euro is the official currency of 20 EU countries. In 2022, it represented 31% of global forex transactions with an average daily turnover exceeding $2.2 trillion. EUR\/USD is the most traded currency pair, making up about 30% of all transactions.<\/p>\n
The European Central Bank influences the Euro through interest rates, aiming primarily at price stability. Inflation exceeding the ECB’s 2% target may prompt rate hikes. Economic indicators like GDP and PMIs, along with trade balance data, play a role in determining the Euro’s value.<\/p>\n
Given the widening policy gap between a steady European Central Bank and a dovish Federal Reserve, we see the path of least resistance for EUR\/USD as upward in the near term. The primary trade is to position for further Euro strength against the US Dollar. Derivative traders should consider buying EUR\/USD call options or implementing bull call spreads to capitalize on this expected move.<\/p>\n
The market’s anticipation of two more Fed rate cuts in 2026 is the key driver of dollar weakness. However, we must note that the December 2025 jobs report showed a stronger-than-expected gain of 216,000 non-farm payrolls, which could complicate the timing of the Fed’s next move. This suggests that while the direction is down for US rates, the path may be volatile.<\/p>\n
On the other side of the pair, the ECB’s hesitation to cut rates is supported by recent inflation figures. Eurozone inflation, as measured by the HICP, unexpectedly accelerated to 2.9% in December 2025, reinforcing the central bank’s cautious stance. This keeps Euro-denominated assets relatively attractive from a yield perspective.<\/p>\n
While the interest rate outlook favors the Euro, we are also monitoring signs of economic weakness in the Eurozone’s largest economy. Germany’s Manufacturing PMI has been in contraction territory, with a recent reading of 43.3 in late 2025. Another weak print could temper enthusiasm for the Euro and cap the rally in the EUR\/USD pair.<\/p>\n
This policy divergence is not new, and we can look to history as a guide for how such trends can play out. The period from 2014 to 2015 saw a similar, though inverse, divergence that led to a sustained trend in the currency pair. This precedent suggests the current environment could support a multi-month upward trajectory for EUR\/USD.<\/p>\n
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