The Euro to US Dollar exchange rate stabilized after rising for eight days, as the US Dollar showed some strength. Currently, the rate is around 1.1659, ending its upward trend after reaching its highest level since October 17 earlier today. The Euro remains supported due to pressure on the US Dollar ahead of the Federal Reserve’s upcoming meeting, where a rate cut is likely.

Economists Predict Federal Reserve Rate Cut

Economists expect a 25 basis point rate cut during the Federal Open Market Committee (FOMC) meeting on December 9-10. According to the CME FedWatch Tool, there is an 87% chance of this rate cut happening. Weak US economic data and concerns about the labor market have fueled these expectations. A recent survey suggests that the Fed Funds Rate might drop to 3.50%-3.75% in December and could decrease further by early 2026. In the US, the labor market showed some positive signs, with Challenger Job Cuts falling to 71,300 in November and Initial Jobless Claims improving to 191,000, which was better than the expected 220,000. In the Eurozone, Retail Sales remained flat at 0% in October, but annual sales increased by 1.5%, exceeding forecasts. This Friday, important Eurozone data on GDP and Employment Change will be released, along with the US’s September PCE Price Index and other economic reports. After a major rally, EUR/USD is pausing as the market heavily bets on a Federal Reserve rate cut next week. This strong expectation has weakened the US Dollar. Traders are now questioning if the likelihood of a rate cut is already reflected in the market prices. All attention is focused on tomorrow’s US Personal Consumption Expenditures (PCE) price index, which is the Fed’s favored measure of inflation. The October 2025 reading showed core PCE at 3.0% annually, above the Fed’s target, which has kept officials cautious. If this upcoming report indicates that inflation is more persistent than expected, it might lead to a quick reversal of rate cut bets and cause the US Dollar to strengthen sharply.

Opportunity for Options Traders

This situation offers a chance for options traders to think about buying inexpensive out-of-the-money EUR/USD put options. This approach allows them to manage risk while preparing for a possible negative surprise from the inflation data or a more cautious stance from the Fed. With the market largely expecting a rate cut, any unexpected changes could have a strong impact. Historically, the dollar has sometimes gained strength even after a rate cut, as seen during the cutting cycle in 2019. This pattern reflects a typical “buy the rumor, sell the fact” response. With an 87% likelihood of a 25 basis point cut already priced in, the threshold for a dovish surprise that might boost the euro further is quite high. The greater risk is that the Fed’s statement may show less commitment to future cuts than the market anticipates. Additionally, we are witnessing rising implied volatility in the forex markets, with the Deutsche Bank FX Volatility Index climbing to a three-month high ahead of these significant events. This indicates that options premiums are increasing as traders prepare for major price movements in the coming days. Traders can consider strategies like straddles to profit from this anticipated rise in volatility in either direction. While attention is on the US, it’s important not to overlook Friday’s Eurozone data, including revised GDP figures. The initial Q3 2025 GDP estimate showed minimal growth of only 0.1%, revealing economic weakness that could hinder the Euro’s strength. A downward revision of these figures might also limit any potential rise in EUR/USD, even with a weakening US Dollar. Create your live VT Markets account and start trading now.

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