EUR/USD holds above 1.1750 due to cautious trade before FOMC Minutes
- EUR/USD moves little as traders adopt caution ahead of the FOMC December Meeting Minutes.
- Traders remain uncertain about an end to the Ukraine–Russia war following alleged strikes on Putin’s residence.
- The US Dollar may face challenges due to growing odds of two more Fed rate cuts in 2026.
EUR/USD holds ground after four days of little losses, trading around 1.1770 during the Asian hours on Tuesday. The pair remains steady as US Dollar (USD) moves little amid market caution ahead of the Federal Open Market Committee (FOMC) December Meeting Minutes due later in the day, which could offer insights into the Federal Reserve’s (Fed) 2026 outlook.
The EUR/USD pair may gain ground as the Greenback faces challenges amid ongoing expectations of two more rate cuts by the Federal Reserve (Fed) in 2026. The CME FedWatch tool shows an 83.9% probability of rates being held at the Fed’s January meeting, up from 80.1% a week earlier. Meanwhile, the likelihood of a 25-basis-point rate cut has fallen to 16.1% from 19.9% a week ago.
The US central bank lowered interest rates by 25 basis points (bps) at the December meeting, bringing the target range to 3.50%–3.75%. The Fed delivered a cumulative 75 bps of rate cuts in 2025 amid a cooling labor market and still-elevated inflation.
The Euro (EUR) may face challenges as risk sentiment increases due to the uncertain Ukraine-Russia situation. Russia’s foreign minister said Moscow’s negotiating stance would shift following alleged strikes on President Vladimir Putin’s residence.
However, the downside of the Euro could be restrained as markets reflect diverging policy paths between the European Central Bank (ECB) and the US Federal Reserve. The ECB held rates steady in December and signaled they are likely to remain unchanged for some time, with President Christine Lagarde noting that elevated uncertainty makes forward guidance on future rate moves difficult.
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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