The Euro (EUR) is gaining against the US Dollar (USD) as markets price in a December Federal Reserve rate cut, shifting structural drivers back into focus. European natural Gas prices have fallen to their lowest since early 2024, giving EUR/USD a boost as European manufacturers regain competitiveness, though a sudden cold spell could tighten the market and reverse gains, Danske Bank's FX analyst Kirstine Kundby-Nielsen reports.

Low European Gas prices support Euro gains

"We now expect the Federal Reserve to cut interest rates in December. It means structural drivers could take the forefront again and start push EUR/USD higher."

"EUR/USD is also getting support from an unexpected side, namely the natural Gas market. The European natural Gas price has dropped to the lowest level since early 2024 and the spread to US natural Gas prices has narrowed to the tightest level since 2021. This is good news for EUR/USD as European manufacturers regain competitiveness, while US energy exporters lose revenue."

"European natural Gas storages are low for this time of year; hence, this benign environment for EUR/USD could end if the temperature suddenly drops in Europe and the need to draw down inventories rise leading to tighter market conditions and a rebound in European prices."