EUR/USD holds firm near 1.1800 as thin liquidity, policy divergence persist

• The Euro-Dollar trades in a narrow range around 1.1800 as volumes thin ahead of Christmas
• The US Dollar struggles to gain traction despite solid US growth and robust macro data
• Diverging monetary policy expectations help keep a constructive bias for the Euro

EUR/USD trades around 1.1800 on Wednesday at the time of writing, up 0.10% on the day, after reaching its highest level since late September earlier in the day. The pair is consolidating its recent gains in a low-liquidity environment, with investors remaining cautious ahead of the Christmas holidays.

The US Dollar (USD) remains under pressure despite the release of strong US Gross Domestic Product data. The Bureau of Economic Analysis reported that the US economy expanded at an annualized rate of 4.3% in the third quarter, following 3.8% growth in the previous quarter, well above market expectations. However, the data provided only temporary support to the Greenback, as investors judge that this pace of growth is not accompanied by sufficient momentum in the labor market.

Comments from US President Donald Trump also weigh on the currency. By openly criticizing monetary policy and calling for lower interest rates when markets are performing well, the president has revived concerns about the independence of the Federal Reserve (Fed), limiting the appeal of the US Dollar. Against this backdrop, the US Dollar Index (DXY), which tracks the Greenback against a basket of major currencies, trades near a multi-week low.

Monetary policy expectations continue to guide market sentiment. According to the CME FedWatch tool, investors are now pricing in a high chance of cumulative rate cuts by the Federal Reserve in 2026, a more accommodative outlook than suggested by the central bank’s latest official projections. This view is reinforced by the composition of US growth, which reflects strong corporate investment, particularly in artificial intelligence, but weaker demand from lower- and middle-income households constrained by inflation and a softer labor market.

On the European side, the European Central Bank (ECB) left its three key interest rates unchanged at its latest meeting. ECB President Christine Lagarde emphasized that the institution is in a good position and that all options remain open. Money markets assign only a limited chance to an ECB rate cut in early 2026, a factor that could help limit downside pressure on the Euro against the US Dollar.

Overall, the year-end environment, combined with more accommodative US monetary policy expectations and a cautious stance in the Eurozone, favors a phase of consolidation for EUR/USD around 1.1800 following the gains recorded in recent days.