EUR/USD climbs as Greenback flows remain in focus
- EUR/USD rose about 0.3%, supported by broad US Dollar weakness and expectations for further Fed rate cuts in 2026.
- Strong US GDP data capped dollar losses, but investors still see the Fed on hold in January before easing later next year.
- The Dollar Index hit October lows, while thin holiday trading and fading U.S. growth confidence kept pressure on the greenback.
EUR/USD climbed around 0.3% on Tuesday, bolstered by a general easing in global US Dollar (USD) flows. Broad-market investor sentiment is on the high side heading through a holiday-shortened week, with the Greenback dragged down by expectations for further Federal Reserve (Fed) easing heading into 2026.
USD on the backfoot as Fed rate cut expectations weigh
The US Dollar weakened on Tuesday in thin, holiday-shortened trading as expectations for further Fed rate cuts next year continued to weigh on sentiment, even after stronger-than-expected economic data. A surprisingly robust 4.3% annualized rise in third-quarter US Gross Domestic Product (GDP) helped the dollar trim losses against the Euro (EUR), but markets still largely believe the Fed will stay on hold in January before resuming easing later in the year, with futures pricing in two cuts in 2026.
Some analysts cautioned that the headline GDP strength may overstate the economy’s underlying health, noting that growth was driven heavily by healthcare spending and inventory drawdowns rather than broad-based business momentum. Combined with signs of a weakening labor market and a drop in US consumer confidence in December, these factors reinforced the view that the dollar could remain under pressure into early next year despite near-term resilience in growth data.
The Euro held modest gains against the Greenback, while the US Dollar Index (DXY) slipped to its lowest level since early October and remained on track for its steepest annual decline since 2017, reflecting a broader shift away from U.S. dollar strength as global rate expectations evolve.
Wednesday will be the last meaningful market day for the Euro this week; American markets will be closing early on Wednesday, and European markets will be dark on December 25 and 26.
EUR/USD daily chart
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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