To heighten brinkmanship ahead of the 2026 US midterm elections, President Trump suggested his administration could leverage the shutdown to pursue mass layoffs of government employees, going beyond the temporary furloughs already affecting an estimated 750,000 personnel.
The current unemployment rate in the US has increased to 4.3% in August 2025 from 4.2% in July, its highest level since October 2021. Hence, the unemployment rate could spike higher if the shutdown lasts for more than a week, with the mass layoffs proposed by Trump.
The Fed funds futures market has started to price in a bleak US labour market condition that triggers an increase in bets for two more Fed rate cuts in the October and December FOMC meetings before 2025 ends
Based on the latest data from the CME FedWatch tool, the odds of a 25 basis points (bps) cut to reduce the Fed funds rate to 3.75%-4.00% on the 29 October FOMC meeting have increased to 95% from 90% a day ago.
Also, the odds have risen to a 75% chance of another 25 bps rate cut in the 12 December 2025 FOMC meeting to bring the Fed funds rate lower to 3.50%-3.75% from around 58% chance recorded previously ex-post 17 September 2025 FOMC meeting.
All in all, the increase in Fed rate cut bets has led to the Eurozone/US implied policy interest rate curve spread to inch higher to -1.84% in November 2025 from -1.93% in October 2025 and rose steadily in the next few months to be at -1.55% by March 2026. Also, the curve spread has shifted upwards from three months ago (see Fig. 1).
The steepening of the Eurozone/US implied policy interest rate curve spread is likely to assert upside pressure in the EUR/USD.
Let’s now examine the latest technical factors on the EUR/USD to determine the next potential short-term (1 to 3 days) trajectory and its key levels to watch.
