EUR/USD slipped below 1.1800 to around 1.1785 in early Asian trade on Thursday. The move came after the US Dollar strengthened following hawkish Federal Reserve meeting minutes.
The January FOMC minutes showed that almost all members supported keeping rates unchanged, while a couple favored a cut. Officials said cuts are still possible if inflation falls as expected. However, several warned that rate hikes may be needed if price pressures continue.
Lagarde Exit Speculation
The Financial Times reported that ECB President Christine Lagarde may step down before her term ends in October 2027. The report said she wants to give French President Emmanuel Macron and German Chancellor Friedrich Merz a chance to choose her successor. No timeline was provided.
Markets will watch preliminary PMI data from Germany and the Eurozone on Friday. Stronger readings could help limit near-term losses in the Euro.
The Euro is used by 20 EU countries in the Eurozone. It accounted for 31% of global FX turnover in 2022, with average daily turnover above $2.2 trillion. EUR/USD is estimated to make up 30% of all FX transactions, followed by EUR/JPY at 4%, EUR/GBP at 3%, and EUR/AUD at 2%.
The ECB, based in Frankfurt, sets policy to keep inflation near its 2% target and meets eight times a year. The four largest euro-area economies produce about 75% of total Eurozone output.
Policy Divergence Focus
At this point in 2025, markets were reacting to hawkish Fed minutes that hinted at further rate hikes. That helped push EUR/USD below 1.1800, while investors also faced uncertainty about ECB leadership. Today, the story has changed. Markets are now focused on policy divergence, not a shared tightening cycle.
The Fed’s tone has softened a lot since early 2025. With the latest US CPI for January 2026 at 2.8%, the Fed is signaling a long pause. Compared with last year, this suggests the US dollar has less upside from surprise rate moves.
In Europe, the ECB faces a different setup. Eurozone HICP inflation is still high at 3.1% as of January 2026. At the same time, the Eurozone Composite PMI has moved back into expansion at 50.5. Together, these factors may keep pressure on the ECB to stay relatively hawkish. Talk about leadership succession has faded, but it remains a background risk that could return.
With this policy gap developing, traders may look at strategies that could benefit if the Euro rises gradually against the US dollar. One approach is selling out-of-the-money EUR/USD puts to collect premium, assuming the pair finds support from a patient Fed. Traders may also look for chances to buy call spreads to target a steady move higher, while limiting risk if ECB leadership concerns return.
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