The EUR/USD pair is stable around 1.1625 as traders wait for the US Federal Reserve’s decision on a likely 25 basis points rate cut. This cut would bring interest rates to their lowest level in nearly three years. In October, US job openings jumped to 7.67 million, beating expectations and boosting the US Dollar. The European Central Bank (ECB) is halting its rate-cutting cycle, with President Lagarde stating the Eurozone economy is stable and inflation is close to the target.

The Euro’s Global Influence

The Euro is used by 20 EU countries and is the second most traded currency after the US Dollar. In 2022, it accounted for 31% of global forex transactions, with a daily turnover of $2.2 trillion. The European Central Bank oversees the Euro’s monetary policy, focusing on price stability. If Eurozone inflation exceeds 2%, the ECB might adjust interest rates. Key economic factors like GDP and employment rates also impact the Euro’s value. A strong Trade Balance boosts the Euro, as it indicates demand for exports, enhancing currency value. The economic situations in Germany, France, Italy, and Spain heavily influence the Eurozone’s overall economy. As the EUR/USD pair holds steady around 1.1625, all eyes are on the Federal Reserve’s rate decision later today. The expected 25 basis point cut seems almost certain, with the CME FedWatch Tool indicating a 92% market probability. The key to market movement will be Chairman Powell’s guidance for 2026.

Market Reactions to Fed Decisions

The underlying strength of the US economy is creating uncertainty about future rate cuts. Last week’s Consumer Price Index report for November came in slightly higher at 3.3%, and the latest JOLTS report showed an unexpected rise in job openings. This persistent inflation suggests the Fed may indicate a more hawkish stance for 2026, which could be bullish for the dollar. Conversely, the European Central Bank appears content to pause its own rate cuts, which may help stabilize the Euro. President Lagarde’s confidence is backed by November’s preliminary Eurozone inflation estimate of 2.3%, moving towards the 2% target. This difference in policy, with the US cutting rates and Europe holding steady, may limit the Euro’s decline against the dollar. Reflecting on the aggressive rate hikes in 2022 and 2023, the Fed is now carefully unwinding that tightening. Before today’s announcement, one-week implied volatility for EUR/USD reached a three-month high, indicating anticipation for a significant price movement. This suggests that strategies aiming for sharp price shifts, rather than a specific direction, could be advantageous in the coming days. Create your live VT Markets account and start trading now.

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