Euro holds near four-year highs as ECB rate decision looms
- EUR/USD traded around 1.1800 on Wednesday, hovering below the four-year peak of 1.2082 touched last week.
- ECB expected to keep rates unchanged Thursday; Eurozone January flash HICP forecast at 1.7% YoY.
- Bessent reiterates strong Dollar policy during House testimony, says Fed lost trust over inflation.
EUR/USD trades mostly flat on Wednesday, drifting around 1.1800 during the European and American sessions. Fiber pulled back from last week's four-year high near 1.2082 but continues to hold comfortably near the 1.1800 handle. The EUR/USD pair has gained roughly 14% over the past 12 months, driven by narrowing interest rate differentials and persistent weakness in the Greenback.
Wednesday's session sees muted price action ahead of Thursday's European Central Bank (ECB) interest rate decision. Markets widely expect the ECB to hold its deposit facility rate steady at 2%, marking the fifth consecutive meeting without a change. The central bank has kept rates on hold since June 2025, and ECB President Christine Lagarde has repeatedly stated that policy is in a "good place."
Swedbank economist Nerijus Maciulis noted that Lagarde is likely to reiterate that the Euro-area economy is in a good place, though risks persist. "The first weeks of 2026 have clearly illustrated that trade deals and agreements are very fragile," Maciulis said, referencing ongoing global trade tensions.
Bessent reiterates strong US Dollar policy
Treasury Secretary Scott Bessent testified before the House Financial Services Committee on Wednesday, reiterating that the US "always supports a strong Dollar policy." Bessent also commented on Federal Reserve independence, noting that the Fed lost Americans' trust when it allowed inflation to "ravage" their incomes. He emphasized that the central bank must maintain a "very delicate balance" in fulfilling its dual mandate.
The US Dollar Index (DXY) hovers near 97.50 on Wednesday, consolidating after its recent recovery from near six-year lows. The Greenback found some support last week after President Trump nominated Kevin Warsh to succeed Jerome Powell as Federal Reserve Chair. Warsh, a monetary hawk and former Fed governor, is seen as a credible pick who may maintain the central bank's independence.
US shutdown delays key labor data
A partial US government shutdown has delayed key labor market releases, including January's Nonfarm Payrolls (NFP) report originally scheduled for Friday. The Bureau of Labor Statistics confirmed the postponement, leaving traders without fresh signals on employment conditions. The Fed held rates steady at 3.50%-3.75% at its January meeting, and markets see low odds of a cut in March given the data vacuum.
EUR/USD price forecast
Despite a recent bullish breakout, EUR/USD is consolidating within a broad sideways range that has defined price action since mid-2025. The pair trades above both the 50-day and 200-day Exponential Moving Averages (EMA), with the 50-day EMA near 1.1740 and the 200-day EMA around 1.1410. This bullish alignment confirms the medium-term uptrend, though the pace of gains has slowed as the pair approaches psychological resistance near 1.20.
Immediate resistance is seen at the recent swing high near 1.1870, followed by the critical 1.20 psychological barrier and the four-year peak at 1.2020. On the downside, the 50-day EMA at 1.1740 offers the first layer of support. A break below this level could expose the 1.1580 zone, the two-month low set in mid-January.
The 14-day Relative Strength Index (RSI) hovers near 53, reflecting neutral momentum with a mild bullish tilt. The indicator has pulled back from overbought levels above 70 seen earlier in January, suggesting the pair may need fresh catalysts to extend higher. For now, the broader bias tilts positive while EUR/USD holds above the 50-day EMA, but a sustained break above 1.1870 would be needed to confirm renewed bullish momentum toward the year's highs.
EUR/USD daily chart
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, 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 Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Author
Joshua Gibson
FXStreet
Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.
