EUR/USD traded near 1.1870 on Friday. It recovered some earlier losses and was almost unchanged on the day. The pair was still set for small weekly gains after softer US inflation data pressured the Dollar.
US headline CPI rose 0.2% month on month in January. That was down from 0.3% in December and below expectations. Annual CPI slowed to 2.4% from 2.7%, also below the 2.5% forecast.
Us Inflation Data And Market Reaction
Core CPI (excluding food and energy) rose 0.3% month on month. That matched expectations and was up from 0.2%. The annual core rate slipped to 2.5% from 2.6%, in line with forecasts.
After the data, the US Dollar gave back earlier gains and Treasury yields fell further. Markets also increased expectations for Federal Reserve rate cuts. The Dollar Index traded near 96.91, down from an intraday high of 97.15.
Rate futures moved to about 61 basis points of cuts in 2026, up from around 58 basis points before the report. CME FedWatch showed about a 65% chance of a first cut in the June–July window.
The European Central Bank was expected to keep rates unchanged through 2026. ECB policymaker Martins Kazaks said officials were watching euro strength. He noted that a “sizeable and pacey” rise could affect the inflation outlook and may trigger a response.
Strategy Implications For Eur Usd
US inflation is now showing signs of cooling, which supports a weaker dollar in the weeks ahead. The January CPI reading of 2.4% is a clear step down, especially after inflation stayed above 3.0% for much of 2025. This improves the case for positioning for a higher EUR/USD.
One way to express this view is to buy EUR/USD call options. A lower-cost approach is a bull call spread—for example, buy the March 1.1900 call and sell the March 1.2050 call. This limits both risk and upside, and it can profit if EUR/USD rises moderately.
Markets have also shifted quickly on Fed policy. They now price in more than two quarter-point cuts this year. That is a major change from late 2025, when traders were still unsure if there would be even one cut. The next non-farm payrolls report will be important. A weak jobs number below 150,000 would likely cement expectations for a mid-year cut.
Still, we need to watch the ECB, which is increasingly uncomfortable with a stronger Euro. Policymakers may step up verbal warnings if EUR/USD approaches 1.2000. These comments could limit gains in the near term and create short-term pullbacks.
In the past, policy gaps like this have produced strong trends—such as in 2014, when the ECB eased while the Fed tightened. That period also showed that sharp, headline-driven pullbacks can happen even in a clear trend. For that reason, dips in EUR/USD caused by ECB jawboning may be buying opportunities, not a reason to drop the bullish view.
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