The EUR/USD pair gained strength, rising above 1.1950 during early trading on Friday. Concerns about uncertain US trade policies and the Federal Reserve’s independence pressured the US Dollar against the Euro. Earlier this week, the US Dollar faced downward pressure after President Trump commented on its weakness. Treasury Secretary Scott Bessent suggested a strong-dollar policy, helping the dollar recover slightly.

Fed Chair Nomination

President Trump announced that he would soon nominate a new chair for the Federal Reserve. He hopes for lower interest rates, which raised worries about the central bank’s independence. This could negatively affect the USD. Market participants are eagerly waiting for Q4 GDP data from the Eurozone and Germany. Weak results could hurt the Euro’s value against the USD. The European Central Bank (ECB) typically influences the Euro through its management of interest rates. If economic data shows inflation exceeding the ECB’s target, rate hikes may benefit the Euro. Economic indicators like GDP and consumer sentiment impact the Euro’s value. The trade balance is significant too; positive balances often strengthen a currency.

Eurozone Economic Performance

The economic performance of the Eurozone, especially in Germany, France, Italy, and Spain, is crucial. These countries play a significant role in the Eurozone economy, thus affecting the Euro’s strength. The Euro’s rise above 1.1950 is fueled by doubts about US policies and concerns regarding the Federal Reserve’s independence. Fresh data showing German inflation at 2.5% for January strengthens the Euro and gives the ECB less reason to cut rates. For now, this reflects a weaker dollar narrative. Market uncertainties are evident regarding the White House’s influence on future interest rate decisions. The constant flow of political news is causing more volatility in the dollar than economic data, a trend similar to what we saw leading up to the 2024 election. This suggests that any dollar strength might be temporary until policies become clearer. On the European side, the situation appears to be stabilizing. Preliminary GDP figures released today indicated that the Eurozone economy grew by 0.3% in the last quarter of 2025, exceeding expectations of 0.2% growth. This positive surprise, along with persistent inflation, supports a stronger Euro, independent of the dollar’s challenges. For derivative traders, this environment favors playing volatility in the coming weeks. Purchasing options, like straddles on the EUR/USD, could be a smart move since political news from the US is likely to cause sharp and unpredictable price swings. While implied volatility is increasing, it still seems low compared to the potential for sudden market changes driven by policy. Looking forward, the upcoming US Producer Price Index will be crucial. A high inflation figure could challenge any push for the Fed to lower rates, potentially leading to direct policy conflicts. We will closely monitor the dollar’s reaction, as this could influence the entire first quarter. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now