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The EUR/USD pair holds steady near 1.1665 during the early Asian trading hours on Tuesday. Traders digested the US President Donald Trump administration's threat to indict the Federal Reserve (Fed) after Chair Jerome Powell said on Sunday that he’s under criminal investigation. 

Political risks around the US central bank could weigh on the US Dollar (USD) and create a tailwind for the pair. Reuters reported on Sunday that the US Justice Department is investigating Fed’s Powell for possible criminal issues related to his June Senate testimony on the Fed’s building renovations. Powell called the threats a "pretext" aimed at putting pressure on the Fed to cut interest rates.

"This open warfare between the Fed and the U.S. administration ... it's clearly not a good look for the U.S. dollar," said Ray Attrill, National Australia Bank's head of currency strategy. 

Signs that the European Central Bank (ECB) appears to be near the end of its rate-cutting cycle could provide some support to the shared currency. ECB Vice President Luis de Guindos said last week that interest rates are at an appropriate level, though he warned of “enormous uncertainty” due to geopolitical risks.

Financial markets currently see limited scope for immediate action, with a chance of rates remaining unchanged at the next meeting. Some analysts expect a rate reduction later in 2026, though a hike is considered unlikely given the subdued inflation backdrop.

The US Consumer Price Index (CPI) inflation data for December will be in the spotlight later on Tuesday. The headline and core CPI are projected to see a rise of 2.7% YoY in December. If the report shows a hotter-than-expected outcome, this could help limit the Greenback’s losses in the near term. 

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