EUR/USD trades with a positive bias around the 1.1775 level during early Asian hours on Monday, supported by renewed weakness in the US Dollar (USD).
Expectations that the US Federal Reserve (Fed) could deliver interest rate cuts in 2026 continue to weigh on the Greenback, providing a tailwind for the Euro (EUR). Later in the session, market attention will turn to the US Pending Home Sales data for November.
Fed outlook and leadership uncertainty pressure the dollar
The Fed lowered the federal funds rate by 25 basis points at its December policy meeting, bringing the target range to 3.50%–3.75%. This move capped a total of 75 bps in rate cuts delivered in 2025, as the labor market showed signs of cooling while inflation remained slightly elevated. Markets are now pricing in two additional rate reductions in 2026, a dynamic that continues to undermine the USD and support EUR/USD.
Uncertainty surrounding future Fed leadership is adding to the Dollar’s downside. Markets are bracing for US President Donald Trump to nominate a new Fed Chair to replace Jerome Powell, whose term ends in May. Trump has previously stated that he expects the next Fed Chair to keep interest rates low and not “disagree” with him, comments that have reignited concerns over central bank independence.
ECB stance supports the euro
In the Eurozone, the European Central Bank (ECB) kept interest rates unchanged earlier this month and signaled that they are likely to remain on hold for an extended period. ECB President Christine Lagarde stressed that the high level of uncertainty prevents the central bank from offering clear forward guidance, reinforcing a data-dependent, meeting-by-meeting approach.
Money markets are currently pricing in less than a 10% probability of a 25-basis-point rate cut by the ECB in February 2026. Growing expectations that the ECB’s rate-cut cycle is nearing its end are providing near-term support for the single currency, helping EUR/USD maintain its upward momentum above the 1.1750 threshold.
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