EUR/USD nudges lower with markets calm and the US Dollar near lows
|- EUR/USD eases below 1.1730 from the two-month high at 1.1762 posted on Thursday.
- The increasing monetary policy divergence between the ECB and the Fed keeps the US Dollar on its back foot.
- Technical indicators suggest that Euro bulls are starting to lose steam after the rally of the last two days.
EUR/USD posts marginal losses, trading right below 1.1730 on Friday after pulling back from its highest levels in more than two months at 1.1762 reached on Thursday. The increasing monetary policy divergence between the European Central Bank (ECB) and the US Federal Reserve (Fed) is underpinning support for the pair, which has rallied nearly 2% in the last three weeks.
The Fed cut rates this week and pointed to one more rate cut in 2026. Investors, however, still expect that the US central bank will ease monetary policy at least two times, considering that Chairman Jerome Powell will likely be replaced by the more dovish-leaning Kevin Hassett. Hasset is the White House economic adviser and has repeatedly shown his inclination for significantly lower borrowing costs.
On the macroeconomic front, German consumer inflation data confirmed that price pressures accelerated in November, although the monthly inflation contracted. In the US, a batch of Fed policymakers will take the stage and might give further insight into the central bank's monetary policy.
Euro Price Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.08% | 0.12% | 0.20% | -0.06% | -0.13% | -0.07% | 0.02% | |
| EUR | -0.08% | 0.03% | 0.13% | -0.14% | -0.22% | -0.16% | -0.06% | |
| GBP | -0.12% | -0.03% | 0.08% | -0.17% | -0.25% | -0.19% | -0.10% | |
| JPY | -0.20% | -0.13% | -0.08% | -0.24% | -0.32% | -0.28% | -0.17% | |
| CAD | 0.06% | 0.14% | 0.17% | 0.24% | -0.08% | -0.04% | 0.08% | |
| AUD | 0.13% | 0.22% | 0.25% | 0.32% | 0.08% | 0.05% | 0.15% | |
| NZD | 0.07% | 0.16% | 0.19% | 0.28% | 0.04% | -0.05% | 0.10% | |
| CHF | -0.02% | 0.06% | 0.10% | 0.17% | -0.08% | -0.15% | -0.10% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
Daily Digest Market Movers: US Dollar's weakness keeps Euro dips limited
- The Euro (EUR) continues drawing support from broad-based US Dollar weakness. The USD Index, which measures the value of the Greenback against a basket of six majors, has been trading at two-month lows near 98.00, as investors keep pricing further Fed cuts, while most major central banks are at the end of their easing cycles.
- Data from Germany released on Friday revealed that the Harmonized Index of Consumer Prices (HICP) accelerated to 2.6% in the year to November, from 2.3% in the previous month, while prices fell by 0.5% on the month. These figures confirm the preliminary numbers and, therefore, the impact on the Euro has been minimal.
- In the US, Jobless Claims data released on Thursday showed that first-time applications for unemployment benefits rose by 44,000 in the first week of December, to 236,000. This is the largest increase in more than four years and backs the idea that the Fed will be forced to lower interest rates further to support a deteriorating labour market.
- Later in the day, the focus will shift to Philadelphia Fed President, Anna Paulson, the Cleveland Fed President, Beth Hammack, the Chicago Fed President, Austan Goolsbee, and Kansas City Fed President, Jeff Schmid, who will make public comments during the American trading hours.
Technical Analysis: EUR/USD pulls back from overbought levels
The EUR/USD is correcting lower following a nearly 1.2% rally over the last two days that had pushed technical indicators into overbought levels. The 4-Hour Relative Strength Index (RSI) is at 63 after having hit highs past 70, and the Moving Average Convergence Divergence (MACD) indicator has turned flat, indicating a weaker bullish momentum.
Bears are now testing support at the October 17 high near 1.1730. Beyond here, Thursday's low, at the 1.1680 area, and the December 9 low at 1.1615 will come into focus. To the upside, Thursday's high at 1.1762 and the October 1 high at around 1.1780 are likely to challenge bulls. Further up, the target is the September 23 and 24 highs near 1.1820.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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