The EUR/USD fell 0.75% due to Kevin Warsh’s possible nomination as the Federal Reserve Chairman, causing an increase in US yields and Dollar demand. The Euro traded at 1.1882 amidst US Dollar strength driven by expectations of a steady rate stance by the US Federal Reserve, following hotter-than-expected US producer inflation data.
Kevin Warsh’s nomination for Fed Chairman contributes to the Dollar’s rise, with the US Dollar Index nearing a 1% increase. US Treasury yields rose with the 10-year yield at about 4.25%, influenced by the Federal Reserve’s stance on maintaining steady rates. Eurozone GDP data, showing Germany’s economy growing by 0.4% YoY, failed to provide much support against Dollar strength.
Producer Price Index And Eurozone Growth
The Producer Price Index (PPI) inflation held steady at 3.0% YoY in December. Core PPI rose to 3.3%, highlighting ongoing upstream price pressures. The Eurozone showed a 1.4% YoY GDP growth, with Germany exceeding forecasts. In technical terms, the EUR/USD’s uptrend is challenged, risking further downward movement if 1.1800 support breaks, potentially lowering the exchange rate to 1.1743.
The recent nomination of Kevin Warsh to lead the Federal Reserve and hot producer inflation have significantly strengthened the US Dollar. We are seeing markets aggressively price out the rate cuts that were anticipated for this year. This policy shift is the primary driver behind the Euro’s fall below the 1.1900 level.
The December 2025 Producer Price Index (PPI) report was particularly telling, with core inflation accelerating to 3.3% year-over-year. Recent statistics from the Bureau of Labor Statistics show that while goods inflation has moderated, services inflation remains stubbornly high, running above 4.5%. This persistence justifies the Fed’s cautious stance and supports higher US Treasury yields, which are now firmly above 4.25%.
Market Implications And Strategies
Given this environment, we see a clear case for positioning for further Euro weakness against the Dollar. The latest data from derivative markets shows the three-month risk reversal for EUR/USD has plunged to -0.90, its lowest since the third quarter of 2025. This indicates a strong and growing demand for put options that protect against, or profit from, further declines in the pair.
We should also consider the growing policy divergence between the US and Europe. While interest rate futures now price in less than a 10% chance of a Fed rate cut before the summer, the market still implies a 45% probability of a European Central Bank rate cut in the same period. This gap in expectations should continue to weigh on the EUR/USD.
This situation is reminiscent of historical shifts in Fed leadership, where a new, more hawkish chair signaled a new policy regime. We saw a similar dynamic in the early 1980s under Paul Volcker, which led to a multi-year bull market for the US Dollar. The nomination of Warsh, perceived as a hawk, suggests we could be at the beginning of a similar, sustained trend.
With key US jobs data and an ECB meeting on the horizon next week, traders should prepare for heightened volatility. The technical break below the 1.1850 support level is significant and opens the door for a move toward the 1.1800 handle. Strategies that benefit from a declining EUR/USD or rising volatility, such as buying puts or put spreads, appear to be the most prudent approach in the coming weeks.
