FX.co ★ Euro Nears $1.18 as Diverging ECB and Fed Policies Boost 2025 Gains

The euro is trading slightly below $1.18 in a week shortened by holiday activities, reaching its highest levels since late September. It is on track for a 14.7% increase against the US dollar in 2025. This movement highlights the contrasting policy approaches of the European Central Bank (ECB) and the Federal Reserve. In December, the ECB maintained stable interest rates, with ECB President Christine Lagarde pointing out the challenges in forecasting future rate changes due to high uncertainty. Meanwhile, in the United States, there is anticipation for President Donald Trump to appoint a new Federal Reserve chair as Jerome Powell's term concludes in May, possibly favoring a shift towards lower rates. During its December meeting, the Federal Reserve lowered the federal funds rate by 25 basis points, settling at a range of 3.50%-3.75%. This completed a total cut of 75 basis points in 2025, amidst a cooling labor market and moderate inflation pressures. Investors anticipate two more rate reductions next year, which could potentially affect the dollar and bolster the euro further.