Euro Softens to $1.17 as Markets Eye Interest Rate Outlook

2026-01-02 10:17 By Joana Ferreira 1 min. read

The euro dipped below $1.17 at the start of 2026 after a remarkable 13.5% surge against the dollar in 2025, its strongest annual gain since 2017.

Investors remain focused on fresh catalysts, particularly interest rate expectations in the Eurozone and the US.

The ECB indicated rates are likely to stay on hold for now, citing resilient economic growth and inflation close to target, with President Christine Lagarde highlighting that high uncertainty makes forward guidance challenging.

In the US, markets are anticipating President Donald Trump’s nomination of a new Fed chair to succeed Jerome Powell in May, raising the possibility of a more dovish policy stance.

The Fed cut the federal funds rate by 25 basis points to 3.50%-3.75% in December, completing a total of 75 bps of reductions in 2025 amid a cooling labor market and moderately elevated inflation.

Investors are now pricing in two additional rate cuts in 2026, a move that could pressure the dollar and further support the euro.



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