EUR/USD has risen above 1.1750 and is currently around 1.1760 during Friday’s Asian session. Traders are closely monitoring Germany’s Manufacturing PMI data. The Euro is gaining from differences in policy between the European Central Bank (ECB) and the US Federal Reserve. The ECB has kept rates steady, while the Fed is expected to cut rates by 2026. A new Fed chair may further impact US interest rates.

Probability Of Unchanged Rates

The FedWatch tool shows an 85.1% chance that rates will remain unchanged at the next Fed meeting, while the possibility of a rate cut is just 14.9%. In December, the Fed lowered rates by 25 basis points, setting the target range at 3.50%–3.75%. The Euro is the official currency for 20 EU countries. In 2022, it accounted for 31% of global forex transactions, with daily turnover surpassing $2.2 trillion. The EUR/USD pair is the most traded currency pair, making up about 30% of all trades. The European Central Bank affects the Euro through interest rates, primarily aiming for price stability. If inflation exceeds the ECB’s 2% target, rate hikes may follow. Key indicators like GDP, PMIs, and trade balances influence the Euro’s value. Given the widening gap between the steady ECB and the dovish Federal Reserve, we expect EUR/USD to trend upward in the near term. The main strategy is to prepare for further Euro strength against the US Dollar. Traders might think about buying EUR/USD call options or setting up bull call spreads to benefit from this anticipated move.

Market Anticipation

The market expects two more Fed rate cuts in 2026, which contributes to dollar weakness. However, the December 2025 jobs report showed a stronger-than-expected increase of 216,000 non-farm payrolls, potentially complicating the timing of the Fed’s decisions. This suggests that although US rates may trend downward, the path could be rocky. Conversely, the ECB’s reluctance to cut rates is backed by recent inflation data. Eurozone inflation, measured by the HICP, unexpectedly rose to 2.9% in December 2025, reinforcing the central bank’s cautious approach. This makes Euro-denominated assets more appealing from a yield standpoint. While the interest rate outlook favors the Euro, we are also observing signs of economic weakness in Germany, the Eurozone’s largest economy. Germany’s Manufacturing PMI has been in contraction, with a recent level of 43.3 in late 2025. Another disappointing reading might dampen enthusiasm for the Euro and limit the EUR/USD rally. This policy divergence isn’t new. Looking back, a similar trend from 2014 to 2015 led to a sustained movement in the currency pair. This history suggests that the current situation could support a multi-month upward trajectory for EUR/USD. Create your live VT Markets account and start trading now.

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