EUR/USD gains traction above 1.1950 on Fed uncertainty

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The EUR/USD pair trades on a positive note near 1.1980 during the early European session on Thursday. The US Dollar (USD) remains weak against the Euro (EUR) amid uncertainty over US economic policies. The Eurozone Consumer Confidence and US Initial Jobless Claims reports are due later on Thursday.

EUR/USD strengthens to around 1.1980 in Thursday’s early European session.
Trump may announce his pick for the new Federal Reserve Chair in about a week or so.
The Fed decided to keep rates steady for its first meeting of 2026.

Traders remain concerned over US President Donald Trump's erratic policymaking and the Federal Reserve (Fed) independence, which drags the USD lower and acts as a tailwind for the major pair. The US president said on Tuesday that he will announce his pick for the new Fed Chair soon. Trump added that interest rates will significantly drop as soon as a new Fed chair is at the helm.

The US central bank decided to leave interest rates unchanged in a range of 3.5%-3.75% at its January policy meeting on Wednesday. During the press conference, Fed Chair Jerome Powell stated that the outlook for economic activity has improved since the last meeting and that the labor market has shown signs of stabilizing, but also noted signs of continued cooling.

Fed officials signaled a more cautious approach to potential future rate reductions. Markets expect the Fed to wait until at least June before adjusting its benchmark rate again. A hawkish hold from the Fed could help limit the US Dollar’s losses in the near term.

Across the pond, economists widely anticipate the European Central Bank (ECB) to keep rates steady at its upcoming February meeting and through at least mid-2026. The central bank indicated that rates are in a "good place" to ensure medium-term price stability.

Euro FAQs

What is the Euro?

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%).

What is the ECB and how does it impact the Euro?

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.

How does inflation data impact the value of the Euro?

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.

How does economic data influence the value of the Euro?

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.

How does the Trade Balance impact the Euro?

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.