The EUR/USD rate is falling even though the dollar pared some of its earlier gains on Friday, triggered by solid U.S. economic releases this week that improved the outlook for the labor market. This reduced the chances of further easing of monetary policy by the Federal Reserve, which was a favorable tailwind for the dollar. The pair is trading at 1.1599, down 0.08%.
The edges of the euro are slipping as robust U.S. labor and manufacturing data support the dollar despite weakening momentum
The single currency could end the week in the red after solid jobless claims were revealed on Thursday. This, a surge in factory inflation and U.S. President Trump’s reluctance to nominate Kevin Hassett as Fed chairman, resulted in higher U.S. Treasury yields and lower expectations for further Fed easing.
As a result, the dollar made up for its losses. US Treasury Secretary Scott Bessent said the Fed chairman’s decision would be known before Davos and that Governor Stephen Miran could continue working at the central bank after January 31street.
On Friday, several Federal Reserve officials, led by Vice Chairman Philip Jefferson, Gov. Michelle Bowman and Susan Collins of the Boston Fed, crossed the line. With the exception of Bowman supporting further interest rate cuts, Jefferson and Collins believe policy is on track.
Data showed U.S. industrial production rose 0.4% in December, beating estimates of a decline to 0.1%, the Federal Reserve revealed.
In Europe, dissatisfaction remained after the publication of inflation data in Germany, which in December reached the European Central Bank’s target of 2% y/y.
Price in euros this week
The table below shows the percentage change of the euro (EUR) against the major currencies traded this week. The euro was strongest against the Swiss franc.
| USD | EUR | GBP | JPY | BOOR | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.29% | 0.13% | -0.03% | 0.00% | -0.05% | -0.40% | 0.29% | |
| EUR | -0.29% | -0.16% | -0.26% | -0.29% | -0.34% | -0.69% | -0.00% | |
| GBP | -0.13% | 0.16% | -0.13% | -0.13% | -0.18% | -0.53% | 0.15% | |
| JPY | 0.03% | 0.26% | 0.13% | 0.02% | -0.04% | -0.39% | 0.31% | |
| BOOR | -0.00% | 0.29% | 0.13% | -0.02% | -0.08% | -0.41% | 0.29% | |
| AUD | 0.05% | 0.34% | 0.18% | 0.04% | 0.08% | -0.35% | 0.34% | |
| NZD | 0.40% | 0.69% | 0.53% | 0.39% | 0.41% | 0.35% | 0.69% | |
| CHF | -0.29% | 0.00% | -0.15% | -0.31% | -0.29% | -0.34% | -0.69% |
The heat map shows the percentage changes of the major currencies relative to each other. The base currency is selected from the left column and the quote currency from the top row. For example, if you select Euro from the left column and move along the horizontal line to US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
Daily market update: Euro falls as inflation falls
- The U.S. Dollar Index (DXY), which tracks the U.S. currency’s performance against six other indexes, rose 0.03% to 99.38. U.S. Treasury yields are soaring after Hassett’s headline, with the 10-year Treasury yield rising nearly five basis points to 4.219%.
- Economic data from the United States showed a mixed inflation picture, with stabilizing consumer prices and high inflation on the producer side. On a year-over-year basis, headline CPI remained at 2.7%, virtually unchanged from November, while PPI accelerated to 3.0%, up from 2.8% the previous month, highlighting continued upstream cost pressures.
- The labor market also signaled resilience. Last Friday’s nonfarm payrolls report was solid despite lower-than-expected forecasts, while the unemployment rate fell to 4.4%, below the Fed’s projection of 4.5%. Reinforcing this strength, the number of initial unemployed fell from 207,000 to to 198,000, which indicates fewer Americans are applying for unemployment benefits.
- Vice President Jefferson said officials did not want to prejudge the January decision, adding that the current political stance leaves the U.S. in a good position to determine how much and when to adjust interest rates. Governor Bowman argued that the Federal Reserve should not pause its monetary easing cycle, arguing that additional interest rate cuts are warranted in lightweight of growing labor market risks.
- Meanwhile, Boston Fed President Susan Collins stressed the importance of central bank independence, noting that an effective central bank must remain accountable while also having the freedom to make hard and potentially unpopular decisions in carrying out its mandate.
- US economic data this week revealed that producer-side inflation has picked up, while the labor market, although weakening, remains resilient after Thursday’s solid jobless claims report. As a result, market participants restricted their attitude towards further interest rate cuts by the Fed in 2026.
- The U.S. Dollar Index (DXY), which tracks the U.S. currency’s performance against six other indexes, rose 0.03% to 99.38.
- In this situation, investors restricted the chances of further easing of monetary policy by the Federal Reserve. Main Square Terminal data shows 43 basis points of easing expected by the end of 2026.
- The final harmonized index of consumer prices (HICP) in Germany published on Friday confirmed a decline in inflation. Prices rose 0.2% month-on-month in December, reversing November’s -0.5% decline, while annual inflation fell to 2.0%, down from 2.6% previously. The data triggered a moderate rebound in the euro, which rebounded from the session lows following their release.
Technical Outlook: EUR/USD drops below 1.1600 and turns bearish
EUR/USD remains in a consolidation phase, although it briefly fell below 1.1600, reaching a year-to-date low of 1.1593, before rebounding above this value. Despite the recovery, the downtrend continues and the Relative Strength Index (RSI) remains below the neutral level of 50, which means that sellers remain in control.
For the bearish scenario to extend, a re-break below the 200-day plain moving average (SMA) at 1.1582 is on the radar. The decisive move below this level would be 1.1500, followed by a potentially deeper decline towards the August 1 low of 1.1391.
On the other hand, buyers will need to break the 1.1600 level to ease the downside pressure. A sustained push above 1.1650 exposed 1.1700 and 1.1750.
Frequently asked questions about the euro
The euro is the currency of the 20 European Union countries belonging to the euro zone. It is the second most widely traded currency in the world after the US dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with average daily turnover exceeding $2.2 trillion per day. EUR/USD is the most traded currency pair in the world, accounting for an estimated 30% discount on all trades, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the euro area. The ECB sets interest rates and manages monetary policy. The ECB’s primary task is to maintain price stability, which means controlling inflation or stimulating economic growth. Its basic tool is to raise or lower interest rates. Relatively high interest rates – or the expectation of higher interest rates – will usually benefit the euro and vice versa. The Governing Council of the ECB takes decisions on monetary policy at meetings held eight times a year. Decisions are made by the heads of the euro zone’s national banks and six lasting members, including ECB President Christine Lagarde.
Inflation data in the euro area, measured by the Harmonized Index of Consumer Prices (HICP), is an significant econometric indicator for the euro. If inflation rises more than expected, especially above the ECB’s target of 2%, this obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to interest rates will typically benefit the euro as they make the region more attractive as a place to park money for global investors.
The published data are used to assess the condition of the economy and may affect the euro. Indicators such as GDP, PMIs for industry and services, employment and consumer sentiment surveys may influence the direction of the single currency. A robust economy is good for the euro. Not only will it attract more foreign investment, but it may prompt the ECB to raise interest rates, which will directly strengthen the euro. Otherwise, if economic data is tender, the euro will likely fall. The economic data for the four largest eurozone economies (Germany, France, Italy and Spain) is particularly significant as they constitute 75% of the eurozone economy.
The next significant data release for the euro is the trade balance. This indicator measures the difference between what a country earns from exports and what the country spends on imports over a given period. If a country produces a highly sought after export, its currency will only appreciate in value due to the additional demand generated by foreign buyers wanting to buy those goods. Therefore, a positive net trade balance strengthens the currency and vice versa in the case of a negative balance.
