The EUR/USD exchange rate dropped below 1.16 after the European Central Bank (ECB) decided to keep interest rates steady. This contrasts with the recent rate cut by the Federal Reserve. The ECB held rates at 2.00%, 2.15%, and 2.40%, indicating stable economic conditions in the Eurozone. Federal Reserve Chair Jerome Powell pointed out that the US jobs market remains strong. The Fed reduced rates by 25 basis points, bringing them to 3.75%-4%, but indicated that more cuts are not guaranteed due to differing opinions among the Federal Open Market Committee (FOMC) members.

Dollar Index Strength

The US Dollar Index increased by 0.37% to 99.50, showcasing the dollar’s strength. The ECB noted Eurozone inflation is close to 2% and has not set a clear path for rates. They acknowledged modest economic growth of 0.2% despite global challenges. The EUR/USD pair showed a bearish trend, with sellers looking to push the rate down further to 1.1500 after struggling to stay above 1.1600. A drop below 1.1542 could lead to additional declines, while crossing back above 1.1600 might lead to a period of consolidation. Trade developments between the US and China have seen China restart soybean purchases and lower tariffs, which could further influence currency movements. We are witnessing a clear contrast between the Federal Reserve and the European Central Bank, pushing the EUR/USD below 1.1600. The Fed’s cautious approach indicates they are not eager to make further cuts, while the ECB seems content to maintain its position for now. This difference in policy is the key factor affecting the market as of October 31, 2025.

Economic Figures and Market Outlook

This view is supported by the latest economic data. The recent estimate for US Q3 GDP showed a solid annual growth rate of 4.9%, significantly surpassing the Eurozone’s weak 0.1% for the same period. This strong performance gives the Fed the ability to remain firm, strengthening the dollar against the euro. In the weeks ahead, we can expect continued pressure on the euro, with the 1.1500 level serving as an important psychological target. Buying put options on the EUR/USD could be a smart move to take advantage of this anticipated decline while managing risk. The market will be closely monitoring any changes in sentiment leading up to the December central bank meetings. This situation feels somewhat familiar, reminiscent of the divergence we observed back in 2022 when the Fed’s aggressive rate hikes outpaced the ECB’s efforts. That difference in policy pushed the EUR/USD below parity for the first time in twenty years. While we don’t expect a similar dramatic movement now, this historical context supports a bearish outlook for the pair in the medium term. Attention will now shift to the upcoming inflation and employment reports from both regions. The US Non-Farm Payrolls report, scheduled for next week, will be crucial for confirming the Fed’s perception of a robust labor market. Any unexpected weaknesses could challenge the hawkish stance, but for now, we anticipate that implied volatility will stay high. Create your live VT Markets account and start trading now.

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