The interest battle between Washington and Frankfurt: Who controls the dollar-to-euro exchange rate?

The EUR/USD pair is no longer just a number watched by specialists; it has become a real battleground between two contradictory monetary policies. Over the recent months of 2025, this pair has oscillated between strong support at 1.1550 and narrow resistance around 1.17, with every small move driven by statements from the Federal Reserve or the European Central Bank. The equation is simple: whenever the Fed signals easing, the euro-dollar price dips slightly; when it signals tightening, the dollar rises quickly.

Narrow Balance: The Dollar’s Edge Slowly Erodes

Today, the dollar retains a relative advantage, but it no longer dominates as it did in early 2025. The reason is very clear when looking at the actual numbers. The US economy grew by 2.1% in the first half of 2025, a decent growth rate but below expectations. The unemployment rate fell to around 4%, and inflation remains stubborn at 2.9% according to the Personal Consumption Expenditures index, above the Fed’s 2% target.

These figures give the dollar some strength but not enough to decisively shift the balance. Investors prefer the dollar because yields on US bonds approach 4%, while European counterparts offer only around 3.25%. The small gap is enough to maintain relative attractiveness.

Europe: Slowly Emerging from Uncertainty

On the other side of the Atlantic, the picture is bleaker. Germany, the largest economy in the Eurozone, experienced a 0.3% decline in industrial production in September 2025. PMI indicators have fallen below 50 points (the dividing line between growth and contraction) for four consecutive months. This is not a minor slowdown but a red flag for maintenance.

France, the second-largest economy, suffers from a jobless rate stuck around 7.5%, and retail sales are declining. Everywhere you look, signs of concern emerge. Yet, the European Central Bank kept interest rates unchanged for the third consecutive time in October 2025, reaffirming that the current level is “appropriate.”

Here lies the real paradox. Europe is economically struggling, but the ECB warns against rapid easing. Inflation in the region remains at around 2.6%, slightly above the 2% target, and the bank does not want to return to a scenario of rising prices.

Geopolitical Context: Gas, Wars, and Waning Confidence

The true movement of the dollar-euro rate cannot be understood solely through central bank halls. The Russia-Ukraine war is not over, and its effects persist. Natural gas prices in Europe rose about 12% during October 2025, driven by an early cold wave and reduced supplies from Norway. This increase directly impacts production costs, especially for heavy industries.

The International Energy Agency warned that these prices could add between 0.3 and 0.4 percentage points to European inflation by the end of 2025. Simultaneously, European governments increased defense spending by an average of 7%, diverting resources from productive investment to defense, deepening growth issues.

In contrast, the US faces a different kind of pressure. Federal debt exceeded $34 trillion at the end of September 2025, a concerning figure. But the dollar remains the global “safe haven.” When risks escalate, investors flock back to US assets. In October, amid rising tensions in the Black Sea, the dollar index rose 1.2% in one week, while the euro slipped to its lowest in three weeks near 1.1570.

Technical Analysis: Narrow Range Awaiting Breakout

From a technical perspective, the picture is very clear. EUR/USD is stuck in a horizontal range between 1.1550 and 1.1700, a classic consolidation. The pair is now moving cautiously at 1.1550, with very weak momentum, meaning any upcoming move will be limited in size.

The RSI (Relative Strength Index) hovers around 40, indicating lack of a strong trend. The MACD shows a weak bearish crossover, suggesting that any move may be corrective rather than impulsive.

Key supports are at 1.1367 and 1.1186, while resistances are at 1.1711 and 1.1913. A clear break of either level could trigger a new momentum phase, but currently, markets are waiting.

CFTC data (Commodity Futures Trading Commission) shows that speculative positions on the euro decreased by 12% in October, indicating traders are beginning to doubt a bullish trend. However, a bright spot is the Sentix confidence indicators for November, which showed a slight improvement after four months of contraction, potentially providing temporary psychological support.

December: The Moment of Truth

The European Central Bank will hold its last meeting of the year on December 12, 2025. Futures price in a 35% chance of rate cuts and a 65% chance of holding steady. This split reflects the bank’s very difficult position.

Scenario One: a surprise 25 basis point cut. If this occurs while the Fed delays its decision, the EUR/USD could dip toward 1.14 in the short term. ING Bank has forecasted this scenario, but it may not last long as markets will start pricing in a broader easing cycle later.

Scenario Two: steady rates with a dovish tone. If the ECB states, “We are prepared to cut in the first quarter of 2026,” this could be seen as moral support, pushing the pair toward 1.17. Deutsche Bank analysts see this as particularly promising.

Scenario Three: continued hawkish stance. If the bank chooses to wait until mid-2026 before any cut, this may support the euro temporarily but will put pressure on weaker economies, reintroducing downside risks later.

The reality is that EUR/USD movements are no longer solely data-driven. The currency moves preemptively based on expectations of monetary policy changes. The yield on 10-year German bonds rose to about 2.3% in October 2025, the highest in three months, while US bond yields slightly declined to 4.1% after Fed statements indicating gradual easing in the first half of 2026.

Summary: Balance of Fear and Hope

Currently, the EUR/USD rate reflects a very complex stance: the dollar retains an edge but is eroding, and the euro struggles but does not collapse. Both currencies face fundamental challenges, but neither has a severe enough problem to overturn the balance radically.

It is likely that the pair will remain in the 1.15-1.18 range until the end of 2025, with very limited chances of strong breakouts unless there is a radical change in monetary policy tone from either side.

The real question is not where the pair will go soon, but which currency will lose market confidence first. If the US economy shows clear signs of recession, the dollar will be the first loser. Conversely, if European industrial weakness persists, the euro will suffer more.

Ultimately, EUR/USD is the most followed currency pair worldwide for a simple reason: it reflects the overall global financial mood. When markets are optimistic, the euro rises. When fear takes hold, investors flock back to the dollar. Between optimism and fear, this dual dance between the two major economies will continue to shape this unique pair’s trajectory.