EUR/USD softens below 1.1750 after Fed Minutes
- EUR/USD softens to around 1.1745 in Wednesday’s early Asian session.
- Fed Minutes showed most officials expect additional rate cuts.
- The ECB kept interest rates unchanged earlier this month and hinted that they are likely to remain steady for some time.
The EUR/USD pair attracts some sellers near 1.1745 during the early Asian session on Wednesday. The US Dollar (USD) edges higher against the Euro (EUR) after the release of minutes from the Federal Reserve's (Fed) December meeting. The US Initial Jobless Claims report will be released later in the day. Trading volumes are expected to remain thin ahead of the New Year holidays.
According to minutes from the Fed at its December 9-10 meeting, the US central bank decided to cut the interest rate by 25 basis points (bps), bringing the federal funds rate to a target range of 3.50%–3.75%. Those in favor cited increased downside risks to employment and easing inflation pressures. Governor Stephen Miran voted against the action in favor of a jumbo rate cut, while Chicago Fed President Austan Goolsbee and Kansas City’s Jeff Schmid dissented in favor of leaving rates unchanged.
Most Fed officials saw further interest-rate reductions as appropriate so long as inflation declines over time, though they remained divided over when and how far to cut. Following the FOMC minutes’ release, the probability of a January cut based on federal funds futures contracts declined slightly to about 15%, according to the CME FedWatch tool.
”We don't have any direction in Fed policy, and so you're seeing that reflected in the dollar and the currency rates, you're seeing it reflected in the interest rates as well in the Treasury rates, so the market doesn't have a lot to work with right here," said Joseph Trevisani, senior analyst at FX Street in New York.
On the other hand, signals that the European Central Bank (ECB) rate cut cycle is ending might help limit the shared currency’s losses. The ECB held interest rates steady earlier this month and signaled they would likely remain so for some time. ECB President Christine Lagarde stated that the central bank cannot provide forward guidance on future rate moves due to high uncertainty, emphasizing a data-dependent, meeting-by-meeting approach. The money market has priced in for a 25 bps interest rate cut by the ECB in February 2026, currently remains below 10%.
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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