The Euro experiences a decline during the North American session, dipping below the 1.1900 mark against the Greenback. This movement comes as certain Federal Reserve officials express reservations about additional rate cuts, despite the disappointing US Retail Sales data that has left traders unsettled. Currently, the EUR/USD is positioned at 1.1895, having peaked at a daily high of 1.1928.
EUR/USD experiences a pullback as the hawkish stance from the Fed counterbalances the weaker US economic indicators. Declining Retail Sales and a subdued Employment Cost Index indicate pressure on consumers and increasing labor slack. Policy divergence continues, as the European Central Bank maintains its stance while expectations for Federal Reserve easing remain embedded.
>Euro weakens despite disappointing US Retail Sales, as Federal Reserve officials temper near-term rate-cut anticipations: The sentiment in the market continues to be pessimistic as US equities have declined throughout the day. Recent economic data from the US indicates that households are facing challenges due to rising prices and express worries regarding the labor market. Retail Sales for December registered at 0% MoM, falling short of expectations for a 0.4% increase and below November’s 0.6% figure. In the last quarter of 2025, the Employment Cost Index increased by 0.7% QoQ, falling short of the 0.8% recorded in the July-September quarter and not meeting expectations. The report indicates a degree of weakness in the labor market, with policymakers utilizing the ECI as an indicator of job market slack.
Federal Reserve officials are resisting calls to reduce interest rates: In the interim, the Federal Reserve Regional Bank Presidents have made headlines. Dallas Fed’s Lorie Logan remarked that monetary policy stands at a neutral position, indicating that inflation risks are skewed towards the upside, which raises her concerns more than the risks associated with downside growth. Earlier, Cleveland’s Fed Beth Hammack expressed a hawkish stance, stating that “it is important to get 2% inflation before changing rates again.” She noted that inflation remains elevated and that tariff concerns are still relevant. On Tuesday, Europe saw no significant economic updates; however, European Central Bank President Christine Lagarde expressed confidence that inflation within the region is expected to stabilize at approximately 2% in the medium term. The divergence between the Fed and the ECB supports additional upside for EUR/USD. According to data, money markets have factored in almost 60 basis points of interest rate cuts by the Federal Reserve. Conversely, the ECB is anticipated to maintain rates at their current levels for the remainder of the year, with the initial adjustment expected to be an increase in rates.