The EUR/USD pair is under pressure as mixed US labor market data supports the US Dollar. The latest report shows Nonfarm Payrolls increased by 50,000 in December, which is below the expected 60,000. However, the Unemployment Rate dropped to 4.4% from 4.6%. Wage growth increased by 0.3% for the month and 3.8% year-over-year, surpassing forecasts. These data points present a mixed picture: While Nonfarm Payrolls were weak, the falling Unemployment Rate and rising wages suggest some strength in the labor market. Now, the market is looking ahead to the Federal Reserve’s actions and upcoming University of Michigan sentiment data for more clarity.

The Role Of The Federal Reserve

The Federal Reserve shapes US monetary policy and influences the strength of the US Dollar by adjusting interest rates. If inflation goes beyond their 2% target, the Fed raises rates, which helps strengthen the Dollar. If inflation drops or unemployment increases, they might lower rates, weakening the Dollar. Quantitative Easing (QE) involves the Fed increasing credit flow, often leading to a weaker Dollar. In contrast, Quantitative Tightening (QT), which reverses QE, typically strengthens the Dollar. The Fed holds eight policy meetings each year to assess the economy and determine its actions. The mixed US labor report is keeping the dollar strong and putting pressure on the EUR/USD pair. Although job creation was weaker than expected, the market is focusing on the lower unemployment rate and stronger wage growth, indicating underlying strength in the US economy that supports the Dollar. Wage growth is vital because inflation is still a concern for the Federal Reserve. For example, the Consumer Price Index (CPI) for November 2025 was at 3.1%, remaining well above the Fed’s 2% target. As long as inflation stays elevated, the Fed is unlikely to signal any major interest rate cuts. This situation contrasts with Europe, where the European Central Bank started an easing cycle in the summer of 2025 to support a struggling economy. This difference in policy, with the Fed holding steady and the ECB cutting rates, creates a fundamental reason for the Euro to weaken against the Dollar. For derivative traders, this supports strategies aimed at benefiting from a declining EUR/USD.

Trading Strategies And Key Events

Given these trends, there is rising interest in buying put options on the Euro, which would gain from further declines toward the 1.1600 level. Another strategy being considered is selling out-of-the-money call options to generate income, betting that significant upward movements in the pair are unlikely soon. These positions let traders take advantage of downward momentum while managing risk. Key events to watch in the coming weeks include the University of Michigan Consumer Sentiment survey and speeches from Fed officials. A surprisingly weak consumer report could challenge the strong dollar narrative and indicate that the Fed might need to ease policy sooner than expected. Traders should be ready for a potential short-term reversal if Fed speakers express more concern about economic growth. Similar conditions were seen in early 2025 when the market anticipated the Fed’s first moves, leading to significant volatility around key data releases. This indicates that while the overall trend may support a stronger Dollar, sharp counter-moves can happen. Using options can help manage risks associated with the expected fluctuations in the weeks ahead. Create your live VT Markets account and start trading now.

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