EUR/USD falls 0.75% during the North American session in a session characterized by overall US dollar strength, sponsored by Trump’s mildly hawkish election as Federal Reserve leader and an inflation report that ensures the Federal Reserve maintains interest rates. At the time of writing, the pair is trading at 1.1882, down from intraday highs of 1.1974.
Euro falls below 1.19 after signals of hawkish Fed leadership and persistent inflation, which dashes hopes for interest rate cuts
Kevin Warsh is Trump’s choice to be the next Federal Reserve chairman, confirming rumors that leaked tardy Thursday night. Financial markets caused precious metal prices to fall, while the dollar lost almost 1% according to the US dollar index (DXY), which tracks the dollar’s performance against six other currencies.
DXY is looking to end the day above the 97.00 level. U.S. Treasury yields rose, while the 10-year yield rose almost one basis point to 4.25%.
In addition to Warsh’s indication, U.S. producer-side inflation has increased, moving away from the Federal Reserve’s 2% target, justifying the Fed’s decision. In addition to the release of producer price index (PPI) data for December, speeches by Federal Reserve officials made headlines.
According to Politico, breaking news shows that the U.S. Senate reached an agreement this evening on the House passing a government funding package, thereby avoiding a shutdown.
U.S. Treasury yields are rising, which means speculators see it less likely that Warsh will be able to cut interest rates “on a massive scale” to please the White House. The US 10-year Treasury yield increased by one and a half basis points and stands at 4.247% at press time.
In Europe, the German economy grew by 0.4% y/y, above estimates. Better-than-expected gross domestic product (GDP) data in Germany and the euro zone and rising inflation in Germany did not provide significant support for the pair.
Next week’s U.S. economic report will include a tranche of U.S. employment data, speeches by Fed officials, and January’s ISM manufacturing and services PMIs. In Europe, flash HCOB PMIs for the bloc and for Germany and France, as well as the European Central Bank’s monetary policy meeting, could cause some EUR/USD volatility.
Price in euros this month
The table below shows the percentage change of the euro (EUR) against the major currencies listed this month. The euro was strongest against the US dollar.
| USD | EUR | GBP | JPY | BOOR | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.85% | -1.48% | -1.10% | -0.59% | -4.17% | -3.85% | -2.44% | |
| EUR | 0.85% | -0.69% | -0.18% | 0.32% | -2.98% | -2.95% | -1.53% | |
| GBP | 1.48% | 0.69% | 0.51% | 1.03% | -2.31% | -2.28% | -0.85% | |
| JPY | 1.10% | 0.18% | -0.51% | 0.42% | -3.01% | -3.24% | -1.24% | |
| BOOR | 0.59% | -0.32% | -1.03% | -0.42% | -3.41% | -3.64% | -1.85% | |
| AUD | 4.17% | 2.98% | 2.31% | 3.01% | 3.41% | 0.03% | 1.50% | |
| NZD | 3.85% | 2.95% | 2.28% | 3.24% | 3.64% | -0.03% | 1.47% | |
| CHF | 2.44% | 1.53% | 0.85% | 1.24% | 1.85% | -1.50% | -1.47% |
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 changes: the return of the dollar causes the collapse of the euro
- Federal President St. Louis Alberto Musalem said the central bank has no need to further cut interest rates at this time as the current interest rate range of 3.50%-3.75% is approximately neutral. He stated that further reductions would be justified only in the event of a piercing deterioration in the labor market situation or a significant drop in inflation.
- Fed Governor Stephen Miran said Kevin Warsh would be an excellent choice for the Fed, adding that the recent enhance in producer prices is mainly due to housing costs and portfolio management fees.
- Meanwhile, Christopher Waller noted that the labor market remains feeble despite steady economic growth. He argued that if it were not for tariffs, inflation would be close to 2%, which in his opinion keeps price growth close to 3%, and added that monetary policy should be closer to neutral, around 3%.
- Atlanta Fed President Raphael Bostic urged policy patience, saying interest rates should remain somewhat tight. He warned that the full impact of the tariffs on inflation has yet to materialize and he expects price pressures to continue.
- The US Bureau of Labor Statistics showed that producer price index (PPI) inflation held steady at 3.0% y/y in December, unchanged from November, and fell compact of expectations for a slowdown to 2.7%. Core PPI, which excludes food and energy, accelerated to 3.3% y/y from 3.0%, defying forecasts of a decline to 2.9%, highlighting continued upstream price pressure.
- Gross Domestic Product (GDP) for the last quarter of last year in the European Union increased by 1.4% y/y, unchanged compared to the third quarter, but above the forecast of 1.2%. In Germany, the economy in the fourth quarter exceeded estimates of 0.3%, growing by 0.4% y/y, compared to the third quarter, where the growth amounted to 0.3%.
- Inflation in Germany in January, as measured by the Harmonized Index of Consumer Prices (HICP), rose by a tenth from 2% to 2.1%, but was within the European Central Bank’s target.
Technical Outlook: EUR/USD uptrend at risk after breaking below 1.1850
The technical picture for EUR/USD shows that the uptrend is at risk after breaking through the 2025 yearly high at 1.1918, extending the decline below 1.1850. The relative strength index (RSI) showed that the momentum has turned slightly bearish, which could pave the way for further declines in the pair.
In this case, the next support for EUR/USD will be the 1.1800 level, which, if it subsides, could take the pair to the 20-day SMA at 1.1743.
On the other hand, the first resistance of EUR/USD is at 1.1900. If recovered, the next key resistance will be the 1.1950 level, followed by a one-year high at 1.2082.
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 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 indefinite members, including ECB President Christine Lagarde.
Inflation data in the euro area, measured by the Harmonized Index of Consumer Prices (HICP), is an crucial 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 common currency. A powerful 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 feeble, the euro will likely fall. The economic data for the four largest eurozone economies (Germany, France, Italy and Spain) is particularly crucial as they constitute 75% of the eurozone economy.
The next crucial 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 willing to purchase those goods. Therefore, a positive net trade balance strengthens the currency and vice versa in the case of a negative balance.
