EUR/USD edges above 1.1750 due to ECB-Fed policy divergence

أسواق الإمارات اليومJanuary 2, 2026

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EUR/USD gains as the ECB is likely to keep interest rates on hold for an extended period.
The US Dollar weakens as markets price in two additional Federal Reserve rate cuts in 2026.
Markets brace for President Trump to nominate a new Fed chair in May, potentially favoring lower interest rates.

EUR/USD has recovered its recent losses registered in the previous session, trading around 1.1760 during the Asian hours on Friday. Traders will likely observe Germany’s Manufacturing Purchasing Managers’ Index (PMI) data later in the day.

The Euro (EUR) is finding support against the US Dollar (USD) as monetary policy paths diverge between the European Central Bank (ECB) and the US Federal Reserve (Fed). The ECB left interest rates unchanged in December and indicated they are likely to stay on hold for an extended period. ECB President Christine Lagarde highlighted that elevated uncertainty makes it challenging to provide clear forward guidance on future policy moves.

The EUR/USD pair gains ground as the US Dollar struggles amid expectations of two additional Federal Reserve rate cuts in 2026, which would narrow interest-rate differentials with other major central banks. Markets are bracing for US President Donald Trump to nominate a new Fed chair to replace Jerome Powell when his term ends in May, a move that could tilt monetary policy toward lower interest rates.

The CME FedWatch tool shows an 85.1% probability of rates being held at the Fed’s January meeting, up from 84.5% a week earlier. Meanwhile, the likelihood of a 25-basis-point rate cut has fallen to 14.9% from 15.5% a week ago.

The Fed lowered interest rates by 25 basis points (bps) at the December meeting, bringing the target range to 3.50%–3.75%. The Fed delivered a cumulative 75 bps of rate cuts in 2025 amid a cooling labor market and still-elevated inflation.

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