The EUR/USD pair is trading close to 1.1650, boosted by hopes that the Federal Reserve will keep interest rates unchanged. This comes after the US jobs growth was slower than expected. Nonfarm Payrolls increased by just 50,000 in December, falling short of the 60,000 forecast. However, the US Unemployment Rate decreased to 4.4% from 4.6%, and Average Hourly Earnings rose by 3.8% year-on-year. Richmond Fed President Tom Barkin described the job growth as modest but stable, while also indicating uncertainty in future labor market trends. The Euro may weaken further as inflation in the Eurozone eases, with the current headline inflation at 2.0% and core inflation just below forecasts at 2.3%. Moreover, European countries are discussing strengthening Arctic security amid rising geopolitical tensions.

Role Of The Euro

The Euro is the currency for 20 EU countries and accounted for 31% of global foreign exchange transactions in 2022. The ECB, based in Frankfurt, manages monetary policy in the Eurozone and affects the Euro’s value. Key economic indicators like inflation, GDP, and trade balances play a vital role in the Euro’s strength. Economic reports from Germany, France, Italy, and Spain are particularly influential due to their significant share in the Eurozone economy. Currently, the EUR/USD rise to 1.1650 seems driven by expectations of a dovish Federal Reserve. The market reacted to the weak US jobs report, with futures indicating a nearly 75% chance that the Fed will keep interest rates steady this month. This quick response has led to a decline in the US Dollar across the board. However, traders should stay cautious, as the underlying US data is not as weak as it seems. The unemployment rate has dropped to 4.4% and wage growth has sped up to 3.8%. These are signs of a strong labor market that might keep inflation high. We saw a similar issue in the third quarter of 2025, when one weak jobs report led to a dollar sell-off that quickly reversed when inflation data was unexpectedly high. On the Euro side, its fundamental support is decreasing, making this rally look unstable. With Eurozone inflation now at the ECB’s target of 2.0%, the argument for holding high interest rates is weakening. Just a year ago, in early 2025, the ECB was clearly hawkish with core inflation above 4.5%; now that pressure has eased.

Outlook And Strategies

Given the mixed signals from both economies, we anticipate rising volatility in the coming weeks. A smart strategy would be to buy options that benefit from significant price movements, like a straddle, rather than simply betting on direction. The current market uncertainty is not fully reflected in options prices, presenting an opportunity ahead of the next central bank meetings. We are also keeping an eye on geopolitical issues related to Greenland, which could lead to sudden, unexpected market moves. Renewed discussions about US ownership from President Trump and possible NATO military activity in the Arctic could strain relations between the US and Europe. This uncertainty adds another layer of complexity, confirming that preparing for significant price changes in either direction is a wise strategy. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now