EUR/USD rose for a second day, but it gave back some of its earlier gains. It stayed above 1.1800 during the first half of Monday’s European session.
Germany’s IFO Business Climate Index rose to 88.6 in February from 87.6 in January. The Current Assessment Index increased to 86.7 from 85.7.
Euro Rises Despite Policy And Trade Uncertainty
The data had little impact on the euro. Traders stayed cautious due to questions around ECB President Christine Lagarde’s tenure and new trade tensions.
On Friday, US President Donald Trump announced a new global levy of 15% after a Supreme Court ruling against his reciprocal tariffs.
The European Parliament’s trade chief said the EU will propose freezing the ratification of the US-EU trade deal. The freeze would remain until the Trump administration provides clearer details on its trade policy.
These headlines weighed on the US dollar and helped support EUR/USD. Markets also priced in at least two more 25 bps rate cuts from the Federal Reserve, adding to USD weakness.
The US dollar is weakening, which is supporting EUR/USD. This softness is mainly driven by recent data, including the final Q4 2025 US GDP report showing slow growth of 1.2%. That has increased expectations for Fed rate cuts, as markets lean toward a more dovish central bank.
Fed Cut Bets Keep Pressure On The Dollar
In the derivatives market, the CME FedWatch Tool shows a more than 70% chance of a 25 basis point cut at the Fed’s March 2026 meeting. This expectation is keeping pressure on the dollar and remains the main reason EUR/USD is holding up. We believe shorting the dollar remains an attractive underlying trade.
This backdrop resembles the trade uncertainty seen in 2020, which also pushed the dollar lower. Today, the dispute centers on the EU’s Carbon Border Adjustment Mechanism, reviving “Sell America” talk among some traders. Ongoing trade disputes continue to weigh on the US currency.
Still, the euro is not showing strong momentum, which limits how far the pair can rise. The latest German IFO Business Climate index for February 2026 came in at 90.2, slightly below expectations and offering little market support. This suggests recent EUR/USD gains are driven more by dollar weakness than by confidence in the euro.
With that in mind, traders may consider buying near-term EUR/USD call options, for example with a strike around 1.1550. This provides exposure to further upside if Fed cut expectations keep building. The premium paid also defines the maximum risk if the euro’s lack of strength limits the rally.
For traders who are more cautious about a large move higher, selling out-of-the-money put options with a strike near 1.1300 could be an alternative. This approach earns premium based on the view that euro data may cap gains, but weak dollar sentiment could also reduce the risk of a sharp drop in the weeks ahead.
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