The Euro-Dollar pair is steady around 1.1800 as trading activity slows before Christmas. The Euro remains strong because of different expectations for monetary policies, while the US Dollar struggles to gain traction despite positive growth data from the US. Economic Indicators and Market Reactions In the third quarter, the US GDP grew by 4.3%, exceeding expectations, but challenges in the labor market keep the US Dollar from rising. President Trump’s remarks about lowering interest rates and the Fed’s independence add further strain. The gap between US and European monetary policies affects market sentiment. While the US is expected to cut rates in 2026, the European Central Bank (ECB) maintains a stable outlook. The ECB has kept rates unchanged, with few expectations of rate cuts before early 2026, which supports the Euro. The EUR/USD pair remains around 1.1800 due to a weaker sentiment for the US Dollar. The currency heat map shows the Euro’s strength against the US Dollar and other currencies. Today, the Euro gained 0.08% against the US Dollar, while the US Dollar lost 0.08% against the Euro, reflecting the Euro’s relative strength. Overall, this article highlights how major currencies are affected, noting the Euro’s resilience amid important US economic reports and comments from key figures. Monetary Policy Expectations The main factor driving the market is the increasing difference between the Federal Reserve and the European Central Bank’s expected policies. As the holiday season creates thin trading conditions, the EUR/USD pair stays within a tight range around 1.1800, but the overall trend supports the Euro. This suggests positioning for early 2026 instead of anticipating major movements this week. The recent weakness in the US Dollar is expected as the economy shows signs of cooling despite strong growth numbers. For instance, the November 2025 jobs report indicated non-farm payrolls grew by only 165,000, falling short of expectations. This reinforces market predictions, with the CME FedWatch tool now indicating a greater than 65% chance of a rate cut by the March 2026 Fed meeting. Conversely, the European Central Bank faces less pressure to change its policy. The preliminary estimate for Eurozone inflation in November 2025 was a manageable 2.5%, while the US saw a higher CPI reading of 3.2%. This difference supports using options strategies that benefit from a stable or rising EUR/USD, such as buying calls or selling out-of-the-money puts that expire in the first quarter of 2026. With low liquidity until early January, we should be cautious of sudden price swings due to minimal trading volume. Historically, volatility indices like the Cboe EUR/USD Volatility Index (EUVIX) have dropped sharply in the last week of the year, as seen in the holiday seasons of 2023 and 2024. This scenario is better suited for gradually building positions for the new year rather than aggressive short-term trading. Create your live VT Markets account and start trading now.

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