EUR/USD Rises on Fed Rate Cut Hopes The Federal Reserve is likely to cut interest rates by 25 basis points, lowering them to between 3.50% and 3.75%. There’s a nearly 90% chance of this happening. All eyes will be on the Fed Chair’s press conference and the new Economic Projections for hints about future interest rates. Some analysts expect a “hawkish cut” in December, which could strengthen the dollar and impact the currency pair’s value. German and Eurozone Data Boosts Euro In Europe, good news from Germany and the Eurozone is lifting the Euro. Germany’s Industrial Production increased by 1.8% in October, beating expectations. Also, the Eurozone’s Sentix Investor Confidence improved to -6.2 in December, up from -7.4 in November. With EUR/USD edging towards 1.1650, the market is betting on a Federal Reserve rate cut tomorrow. While we are prepared for this announcement, derivative traders are wary of the risk of a “hawkish cut.” This means the Fed might cut rates but indicate that a deep easing cycle is not coming, which could lead to a sudden drop in the currency pair. The Fed is monitoring economic data closely. The latest Non-Farm Payrolls report from November 2025 shows a strong labor market, adding 195,000 jobs, while core inflation remains stubbornly at about 3.6%. This data doesn’t strongly support aggressive rate cuts, suggesting Chair Powell might deliver a careful message tomorrow. Given this, we see benefits in strategies that brace for a possible rise in the US Dollar, even if rates are cut. Buying short-dated, out-of-the-money EUR/USD put options is a cost-effective way to hedge long positions or bet on a downward movement. If Powell’s tone is unexpectedly firm, the pair could quickly fall back below the 1.1500 mark. Volatility and Policy Differences Ahead This situation feels similar to the Fed’s policy changes in late 2018 and early 2019. At that time, markets reacted sharply to changes in the central bank’s messaging about future interest rates. We expect similar volatility now, so holding a position without a hedge during the announcement could be risky. Meanwhile, Germany’s strong industrial production supports the Euro, but it’s a secondary factor. The European Central Bank has not indicated plans to cut rates soon, maintaining a policy divergence with the US. This background suggests that any quick drop in EUR/USD after the Fed meeting could be a buying opportunity for a longer-term recovery into 2026. Create your live VT Markets account and start trading now.

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