EUR/USD fell for a third straight day and traded near 1.1860 in early European hours on Thursday. Traders are watching US weekly Initial Jobless Claims, followed by Friday’s US CPI inflation report.
The US dollar strengthened after new US labour data lowered expectations of a March Federal Reserve rate cut. US Nonfarm Payrolls rose by 130,000 in January versus a forecast of 70,000. The Unemployment Rate edged down to 4.3% from 4.4% in December, compared with an expected 4.4%.
Fed Rate Cut Expectations Fade
The CME FedWatch tool shows markets pricing nearly a 94% chance the Fed will keep rates unchanged at its next meeting, up from 80% the previous day.
In the euro area, expectations that the European Central Bank may keep rates steady through the year helped support the euro. ECB President Christine Lagarde repeated that policy decisions will be data-dependent and taken on a “meeting-by-meeting” basis. She also said the ECB will not “precommit to a particular rate path.”
A Reuters poll in January found about 85% of economists expect the ECB to keep interest rates unchanged for the rest of 2026.
The latest US jobs report has changed the near-term outlook. With job growth at 130,000 and unemployment at 4.3%, the market has largely dropped the idea of a March rate cut. This has helped keep the US dollar firm against the euro.
Key Eurozone Growth Signals
Focus now shifts to Friday’s US CPI report. If inflation prints above the 3.1% consensus—closer to 3.3%—it would strengthen the case for the Fed to keep rates steady. In that scenario, some traders may consider bearish positioning in EUR/USD, such as put options, to target a move below 1.1860.
In the Eurozone, recent data points to softer growth. German industrial production unexpectedly fell 0.2%, supporting the view that the ECB will keep policy on hold through 2026. This policy gap—between a patient Fed and a steady ECB—remains a key driver for the pair.
A similar setup played out through much of 2025, when delayed rate-cut expectations supported extended US dollar rallies. CFTC data also shows large speculators have started cutting net-long euro positions, suggesting the downside move could continue as sentiment shifts.
This divergence is also pushing options markets to price larger swings in the weeks ahead. The 1.1800 level is important to watch. A clear break below this psychological support could open the door to a faster drop toward 1.1750. Another strategy some traders may consider is selling out-of-the-money call options to benefit from limited upside.
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