EUR/USD Extends Gains to 1.1620 as ECB Rate Hike Odds Rise Ahead of US NFP Data

The Quick Take

• EUR/USD advanced for a second consecutive session, trading near 1.1620 during Asian hours on Friday
• Rising odds of ECB rate hikes are supporting Euro strength as divergence with the Fed outlook widens
• US Non-Farm Payrolls data is the key near-term catalyst that could determine the EUR/USD trajectory

The Euro extended its two-day rally against the US Dollar to reach approximately 1.1620, driven by increasing market pricing for further ECB rate hikes. The divergence between the European Central Bank's perceived tightening path and the US Federal Reserve's holding pattern has been a primary driver of EUR/USD momentum this week. Asian session trading typically sets the tone for European open direction, and the sustained bid for Euros during low-liquidity Asian hours suggests institutional positioning rather than speculative short-term flows, adding credibility to the move.

A sustained EUR/USD break above the 1.1600 level is technically significant for medium-term momentum traders and could trigger systematic buying from model-driven funds. The ECB's rate hike pricing advantage over the Fed strengthens the carry logic for Euro-denominated assets, potentially attracting European bond inflows alongside FX gains. Dollar weakness is also contributing, as the AI-trade unwind has modestly reduced US equity exceptionalism narratives that had previously supported dollar demand. EM currencies linked to euro-denominated trade flows — Indian Rupee, Turkish Lira, Polish Zloty — tend to see relative stability when EUR strengthens against USD.

The critical near-term catalyst is the US Non-Farm Payrolls release, which will test whether dollar softness is structural or merely a pause. A strong NFP print would reassert Fed rate-hold expectations, likely capping EUR gains near the 1.1650-1.1700 zone. A weak NFP print would validate EUR/USD upside toward 1.1800. Watch ECB communication over the coming days for guidance on the terminal rate path, as any hawkish pivot confirmation would accelerate EUR/USD repricing. The macro variable is the spread between ECB and Fed terminal rate expectations, which is the primary fundamental driver of the pair.

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