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EUR/USD climbed around 0.3% on Tuesday, bolstered by a general easing in global US Dollar (USD) flows. Broad-market investor sentiment is on the high side heading through a holiday-shortened week, with the Greenback dragged down by expectations for further Federal Reserve (Fed) easing heading into 2026.

USD on the backfoot as Fed rate cut expectations weigh

The US Dollar weakened on Tuesday in thin, holiday-shortened trading as expectations for further Fed rate cuts next year continued to weigh on sentiment, even after stronger-than-expected economic data. A surprisingly robust 4.3% annualized rise in third-quarter US Gross Domestic Product (GDP) helped the dollar trim losses against the Euro (EUR), but markets still largely believe the Fed will stay on hold in January before resuming easing later in the year, with futures pricing in two cuts in 2026.

Some analysts cautioned that the headline GDP strength may overstate the economy’s underlying health, noting that growth was driven heavily by healthcare spending and inventory drawdowns rather than broad-based business momentum. Combined with signs of a weakening labor market and a drop in US consumer confidence in December, these factors reinforced the view that the dollar could remain under pressure into early next year despite near-term resilience in growth data.

The Euro held modest gains against the Greenback, while the US Dollar Index (DXY) slipped to its lowest level since early October and remained on track for its steepest annual decline since 2017, reflecting a broader shift away from U.S. dollar strength as global rate expectations evolve.

Wednesday will be the last meaningful market day for the Euro this week; American markets will be closing early on Wednesday, and European markets will be dark on December 25 and 26.

EUR/USD daily chart

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