EUR/USD is on a downward path, nearing the 1.1500 mark during Tuesday’s Asian market session. This drop comes as the US Dollar strengthens amid concerns about the US Federal Reserve’s plans for December. Recently, Fed Chair Jerome Powell mentioned that a rate cut in December is uncertain and urged caution until data releases resume. The odds of a December rate cut have fallen from 94% to 65% this week, according to the CME FedWatch Tool. The US economy is facing possible challenges due to a government shutdown that has lasted six weeks. The ongoing deadlock in Congress over a Republican-supported funding bill has left federal workers unpaid and heightened economic uncertainties. In Europe, the EUR/USD pair might stabilize, as expectations grow that the European Central Bank (ECB) will keep interest rates steady this year. The ECB recently decided to maintain rates, stating a stable inflation outlook and ongoing economic growth despite uncertainties. Eurozone inflation slightly exceeded the 2% target, and GDP growth in the third quarter surpassed expectations, with October seeing improved business sentiment.

ECB Policy Approaches

ECB policymakers believe they are in a strong position but are ready to adapt if economic conditions change. They stress a balanced approach to handling inflation and growth risks, avoiding quick policy changes. As of today, November 4, 2025, the EUR/USD pair shows weakness, having dropped for five consecutive days to nearly 1.1500. The strength of the dollar stems from the cautious tone of the Federal Reserve, which has lowered expectations for a rate cut next month. The CME FedWatch Tool indicates a 65% chance of a December rate cut, down from 94% just last week. However, this dollar strength is fragile due to the ongoing US government shutdown, creating significant economic uncertainty. This situation echoes the 35-day shutdown from 2018-2019, which reduced quarterly GDP growth by an estimated 0.2%. The current deadlock could put further pressure on the dollar, making it hard for it to sustain its gains.

Impact of Economic Factors

Meanwhile, the Euro is gaining some support as the European Central Bank is expected to keep rates unchanged for the rest of the year. Recent data has been positive for the ECB, with inflation in the Eurozone reaching 2.4% in October, slightly above their target. Coupled with an unexpected GDP growth of 0.3% in the third quarter, this gives policymakers room to wait. For derivative traders, the uncertainty between a cautious Fed and the domestic crisis in the US suggests an increase in implied volatility. The ebb and flow of these significant factors could lead to sharp movements in either direction. Traders might consider options strategies like straddles to prepare for a significant breakout, no matter the direction. The 1.1500 level has become a key psychological point for the pair. Given the economic impact of the shutdown, any unexpectedly weak data from the US could result in a swift bounce from this support level. Traders may look to this point for positioning, possibly using call spreads to bet on a short-term rebound. In conclusion, the crucial elements to watch in the upcoming weeks will be developments regarding the US funding bill and the release of economic data. The shutdown has delayed some reports, so new figures on employment or inflation could greatly influence market sentiment. This highlights the importance of closely monitoring the economic calendar. Create your live VT Markets account and start trading now.

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