The EUR/USD fell by 0.16% to 1.1722 after weak US inflation data and steady jobless claims. The European Central Bank (ECB) decided not to change interest rates, with President Lagarde hinting that the cycle of rate cuts might be over. Traders are looking forward to US Core PCE data and the Michigan Consumer Sentiment Index for clues about future Fed policy.

US Economic Indicators

In the US, November’s inflation numbers were the lowest since early 2021. Jobless claims improved, exceeding economists’ expectations. The ECB held rates steady, signaling a possible end to rate changes, showing a careful review process for each meeting. The EUR/USD remained steady as attention turned to upcoming US economic indicators. According to the Bureau of Labor Statistics, US inflation increased by 2.7% year-over-year, while core inflation dipped to 2.6%. Unemployment claims decreased to 224,000. Though predictions for the Fed cutting rates in January stood at 2.4%, a 60 basis point rate cut is expected by the end of 2026. The Chicago Fed President pointed out falling inflation and potential future cuts, while still taking a cautious approach. The EUR/USD is holding steady in the 1.1700-1.1800 range due to low trading volumes. Traders need to break above 1.1750 for more upward movement. If it drops below 1.1700, it could test the 100-day Simple Moving Average near 1.1652. Reflecting on this time in 2024, EUR/USD was trading around 1.17, serving as a good point of comparison now. Today, the pair is lower at 1.1485, highlighting the clearer policy differences between the US and Europe. The anticipated low-liquidity drift during the holidays may not happen this year since traders are actively recalibrating expectations for rate cuts in 2026.

Central Bank Policy Divergence

The European Central Bank hinted that its easing cycle might end in late 2024 but has since dealt with a struggling Eurozone economy. After a brief pause, the ECB cut rates twice in mid-2025 to boost growth, lowering the deposit facility rate to 1.50%. However, Eurostat’s latest estimate for November 2025 indicated that Harmonized Index of Consumer Prices (HICP) inflation remained stubbornly low at 1.8%, below the bank’s target. In contrast, the Federal Reserve has had to maintain its position longer than the market expected last year. The disinflation trend from late 2024 came to a halt in 2025, with the most recent US Consumer Price Index (CPI) for November 2025 showing an inflation rate of 3.0%, well above the Fed’s goal. This increase, led by persistent services inflation, marks a notable change from the 2.6% core inflation seen in November 2024. This growing policy gap is establishing a clear direction, unlike the stagnation we saw at the end of 2024. The US economy remains strong, with the Bureau of Labor Statistics reporting that November 2025 Non-Farm Payrolls added a solid 190,000 jobs, keeping the unemployment rate low at 3.9%. This economic strength is supporting a stronger dollar, as the market is hardly pricing in 25 basis points of Fed cuts for the entirety of 2026. In the coming weeks, this environment suggests that positioning for more dollar strength against the euro is sensible. Buying short-dated EUR/USD put options with strike prices around 1.1400 could be a cost-effective way to trade a potential break of recent lows. While holiday liquidity might be low, a move below the 1.1450 support level could lead to a sharp decline, contrasting with the quiet consolidation we saw a year ago. Create your live VT Markets account and start trading now.

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