EUR/USD slipped to around 1.1905 in early European trade on Tuesday, snapping a two-day rally. Traders stayed cautious ahead of delayed US jobs and inflation data, after a four-day government shutdown.
White House economic adviser Kevin Hassett said US job growth could slow in the coming months. He blamed slower labour force growth and higher productivity.
Us Jobs Data In Focus
The US Nonfarm Payrolls report is due on Wednesday. Forecasts point to a 70,000 increase in January. The Unemployment Rate is expected to hold at 4.4%.
If the data comes in weaker than expected, the US dollar may fall and EUR/USD could rise. If jobs data is stronger, the dollar could strengthen against the euro.
Last week, the ECB left its benchmark interest rate unchanged at 2.0% for the fifth meeting in a row, in line with expectations.
ECB President Christine Lagarde said decisions will stay data-dependent and will be made meeting by meeting. She added that the bank will not commit to a set path for rates.
Ecb Policy Outlook
A Reuters poll in January found that about 85% of economists expect the ECB to keep rates unchanged through the rest of 2026. This suggests markets are pricing in a long pause.
EUR/USD is now trading near 1.0750 and looks soft as markets prepare for this week’s US inflation data. This setup is similar to periods of uncertainty seen in 2025 ahead of major releases. The main focus is the Consumer Price Index (CPI), which is likely to shape the Federal Reserve’s next move.
US inflation in January 2026 was 2.8%, still well above the Fed’s 2% target. At the same time, last week’s jobs report was strong, with 215,000 jobs added. Together, these signals give the Fed little reason to cut rates soon. This supports the US dollar.
In contrast, the ECB says it will stay data-dependent and will not lock in a rate path. Eurozone inflation has cooled faster than US inflation and recently came in at 2.2%. That gives the ECB room to keep rates steady. This gap between a firmer Fed and a more patient ECB is weighing on EUR/USD.
The volatility seen in 2025 showed that policy differences between central banks are a key driver for this pair. The rate gap between the US and the Eurozone has widened to more than 1.5 percentage points. That makes it expensive to bet against the dollar. We expect this situation to persist.
For traders, this backdrop supports a stronger dollar in the weeks ahead. Options strategies that benefit from a drop in EUR/USD, such as buying puts, may work well. With the CPI report approaching, short-term volatility may also rise.
As a result, staying short EUR/USD not only aligns with the data, but can also capture positive carry. This means earning the interest rate difference between the two currencies. We see the easiest path still pointing lower, with 1.0600 as a likely test.
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