Insights 
VT 
The EUR/USD rate fell below 1.16 after the European Central Bank (ECB) held interest rates unchanged, contrasting with the Federal Reserve’s recent rate cut. The ECB maintained rates at 2.00%, 2.15%, and 2.40%, reflecting stable economic conditions in the Eurozone.
Federal Reserve Chair Jerome Powell noted no significant decline in the US jobs market. The Fed had cut rates by 25 basis points to 3.75%-4% but suggested no further reductions were certain due to a divided Federal Open Market Committee (FOMC).
Dollar Index Strength
The US Dollar Index rose by 0.37% to 99.50, highlighting the dollar’s strength. The ECB stated Eurozone inflation is near 2%, with no determined rate path, while acknowledging that despite global challenges, the economy is growing modestly at 0.2%.
EUR/USD showed a bearish trend, with sellers targeting a further drop to 1.1500 after failing to hold above 1.1600. A break below 1.1542 could push the rate down further, while surpassing 1.1600 could lead to a consolidation phase.
Trade developments between the US and China resulted in China resuming soybean purchases and tariff reductions, further impacting currency movements.
We are seeing a clear divergence between the Federal Reserve and the European Central Bank, which is pushing EUR/USD below the 1.1600 level. The Fed’s “hawkish cut” suggests they are not in a hurry to ease further, while the ECB seems content to hold steady for now. This policy gap is the main story driving the market as of October 31, 2025.
Economic Figures and Market Outlook
This view is reinforced by the latest economic figures we have seen. The recent advance estimate for US Q3 GDP showed a strong annualized growth of 4.9%, far outpacing the Eurozone’s sluggish 0.1% for the same period. This economic outperformance gives the Fed room to stay firm, reinforcing the dollar’s strength against the euro.
In the coming weeks, we should anticipate continued pressure on the euro, with the 1.1500 level acting as a significant psychological target. Buying put options on the EUR/USD could be a prudent strategy to capitalize on this expected decline while managing risk. The market will be closely watching for any signs of shifting sentiment ahead of the December central bank meetings.
This situation feels familiar, reminding us of the divergence we saw back in 2022 when the Fed’s aggressive hiking cycle outpaced the ECB’s. That policy gap drove the EUR/USD below parity for the first time in two decades. While we aren’t forecasting such a dramatic move now, that historical precedent supports a bearish outlook for the pair in the medium term.
All eyes will now turn to the upcoming inflation and employment data for both regions. The US Non-Farm Payrolls report, due out next week, will be critical for confirming the Fed’s view of a resilient labor market. Any unexpected weakness could challenge the hawkish narrative, but for now, we expect implied volatility to remain elevated.
