02.01.202610:17:45UTC+00Euro Softens to $1.17 as Markets Eye Interest Rate Outlook

At the onset of 2026, the euro edged closer to the $1.17 mark following an impressive 13.5% increase against the US dollar in 2025, marking the currency's most significant annual appreciation since 2017. Market participants are keenly monitoring new developments, with a particular focus on interest rate expectations within both the Eurozone and the United States. The European Central Bank has conveyed that interest rates are likely to be maintained at current levels for the time being, supported by robust economic growth and inflation aligning closely with targets. ECB President Christine Lagarde has emphasized that the current climate of high uncertainty complicates the provision of forward guidance. Meanwhile, in the United States, anticipation builds around President Donald Trump's upcoming nomination for the new Federal Reserve chair to replace Jerome Powell in May, which could signal a shift towards a more dovish monetary approach. The Federal Reserve reduced the federal funds rate by 25 basis points to a range of 3.50%-3.75% in December, concluding a total reduction of 75 basis points throughout 2025, in response to a slowing labor market and moderate inflation levels. Investors are now factoring in the likelihood of two additional rate cuts for 2026, a scenario that could exert downward pressure on the dollar while offering further support to the euro.