The Euro is strengthening against the US Dollar, currently trading at about 1.1742. This rise is mainly due to a weaker US Dollar, as traders are overlooking positive economic data from the US. Recent US data indicates stable inflation and strong growth. Core Personal Consumption Expenditures (PCE) rose by 2.9% in Q3, and the annual GDP for Q3 grew by 4.4%, surpassing the 4.3% forecast and up from 3.8% in Q2.

US Economic Indicators

Initial Jobless Claims increased slightly to 200K, but this is still below the expected 212K. Core PCE inflation rose by 0.2% month-over-month, and the annual rate increased to 2.8%, up from 2.7%. Personal income went up by 0.3%, which is less than the expected 0.4%, but better than October’s 0.1% gain. Personal spending remained steady at 0.5%. Despite these figures, many expect the Federal Reserve to keep rates steady at their meeting in January. A Reuters poll of 55 economists suggests the first rate cut might not happen until June or later. The US Dollar Index is down 0.41%, trading at around 99.37. Additionally, trade tensions between the US and the European Union have eased following productive discussions about tariffs and a deal concerning Greenland and the Arctic. ECB policymakers have no immediate plans to change interest rates, acknowledging the resilience of the Eurozone’s economic activity, while leaving options open for future decisions.

Currency Market Insights

The EUR/USD exchange rate is climbing toward 1.1750, mainly due to a weaker US Dollar and not necessarily strong confidence in the Euro. This occurs despite positive US growth and job data from late 2025. Traders should be cautious, as this dollar weakness might be overdone. The Federal Reserve’s ability to remain patient is being put to the test by the latest data. For example, December 2025’s Consumer Price Index (CPI) released earlier this month showed a 3.4% increase, slightly up from the previous month. Persistent inflation may make the Fed less likely to cut rates in June than many expect. On the other hand, the European Central Bank’s relaxed approach faces challenges from recent data. In December 2025, the Eurozone experienced a notable inflation rebound to 2.9% year-over-year. This raises the possibility that the ECB may need to take a more cautious approach, limiting how much the Euro can gain itself. For derivative traders, this situation creates potential for volatility, especially ahead of the Fed’s meeting on January 28th. The market’s dovish expectations clash with the more persistent inflation data. Options strategies like long straddles, which benefit from large price movements in either direction, may be ideal for capturing surprises from the Fed’s announcement. We have seen similar patterns before, especially during the 2023-2024 period, when markets aggressively anticipated rate cuts that central banks ultimately did not implement. The current situation feels similar, suggesting that implied volatility in EUR/USD options may be undervalued. This creates a chance for traders to position themselves for a breakout from the current range. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now