Euro Steadies Near 1.1066 Against US Dollar as Outlook Remains Uncertain

After touching a fresh 18-month low near 1.1066, the Euro draws modest buying interest against the US Dollar.
Strong US CPI figures fuel a hawkish reassessment of Fed policy, keeping the US Dollar supported.
December is likely to mark the end of the ECB’s monetary tightening cycle.

A fresh 18-month low near 1.1066 gives way to some support for the Euro (EUR), which trades little changed at around 1.1090 against the US Dollar (USD) in the European session. Thursday’s modest recovery in EUR/USD comes as the US Dollar surrenders part of its earlier advance.

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Having reached a fresh 18-month peak of 103.08 earlier in the day, the US Dollar Index (DXY) eases towards 102.90 during European trading. The index tracks the Greenback against a basket of six major currencies.

Rising inflation in the United States (US) has prompted traders to take an even more hawkish view of the Federal Reserve (Fed), leaving the US Dollar’s outlook firm.

CPI drives further hawkish repricing in Fed funds futures

Despite the closure of US Treasury cash markets, the “hawkish implications from the CPI print continued to be felt in futures pricing yesterday,” according to analysts at Deutsche Bank. In particular, they observe that “Fed funds futures continued to shift in a hawkish direction, with pricing for the December meeting edging up to 28.5bps.” Looking further along the curve, Deutsche Bank adds that “expectations for the September 2027 meeting surged another +7bps to 82bps, although that’s edged back down to 77bps overnight,” highlighting the substantial reassessment of the Fed’s policy path following the CPI release.

Friday’s release of October Producer Price Index (PPI) figures will provide the next test of the strength of US inflation.

Doubts among market experts over the durability of the European Central Bank’s (ECB) tightening cycle are weighing more broadly on the Euro. Following two interest rate increases this year, the ECB is expected to raise rates once more at its December meeting. Growing economic uncertainty, however, means that move is expected to be the last.

Eurozone growth concerns curb expectations of more ECB tightening

The ECB could be approaching the end of its current tightening cycle, Rabobank strategists warn, observing that “the ECB, however, could prove to be reluctant to hike rates beyond December.” Their assessment draws on the fact that “the last ECB press conference suggested that the Governing Council was becoming increasingly concerned about the growth outlook,” supporting the view that policymakers are likely to proceed more cautiously with further rate rises after December’s move.

EUR/USD Technical Analysis Shows Continued Downside Pressure

At 1.1091 on the daily chart, EUR/USD retains a bearish short-term bias, with spot trading below the 20-day Exponential Moving Average (EMA) of 1.1185. This dynamic resistance continues to cap the pair. Meanwhile, a Relative Strength Index (RSI) reading of 37 remains bearish without reaching oversold territory, suggesting continued downward pressure rather than exhaustion.

The 20-day EMA near 1.1185 provides the first resistance on the upside; a daily close above it would be required to soften the prevailing bearish tone. While EUR/USD trades below this moving average, recoveries are likely to attract selling, keeping the pair exposed to fresh lows and support levels not yet mapped on the chart.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Euro Questions Answered

The Euro’s Role in Currency Markets

Used by the 20 European Union countries that make up the Eurozone, the Euro ranks second only to the US Dollar among the world’s most traded currencies. Its share of all foreign exchange transactions stood at 31% in 2022, with average daily turnover exceeding $2.2 trillion. An estimated 30% of all transactions involve EUR/USD, making it the world’s most actively traded currency pair. Next come EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

ECB Policy Influences the Euro

Based in Frankfurt, Germany, the European Central Bank (ECB) serves as the Eurozone’s reserve bank, setting interest rates and overseeing monetary policy. Maintaining price stability is the ECB’s principal mandate, whether through containing inflation or encouraging growth. Adjustments to interest rates are its main policy instrument. Higher rates, or expectations that rates will rise, generally support the Euro; lower rates tend to have the opposite effect. Monetary policy is decided by the ECB Governing Council at eight meetings each year. The decision-makers comprise the heads of the Eurozone’s national central banks and six permanent members, among them ECB President Christine Lagarde.

Inflation Figures Shape the Euro’s Value

Measured by the Harmonised Index of Consumer Prices (HICP), Eurozone inflation is a key economic indicator for the Euro. A stronger-than-expected rise in prices, particularly above the ECB’s 2% target, obliges the central bank to increase interest rates to regain control of inflation. When the region’s interest rates are relatively high compared with those elsewhere, the Euro usually benefits: global investors find it a more attractive destination for their money.

Economic Releases Help Steer the Euro

By revealing the economy’s condition, data releases can move the Euro. GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys are among the indicators capable of shaping the single currency’s direction. Economic strength supports the Euro by attracting additional foreign investment and potentially encouraging the ECB to raise interest rates, which would directly strengthen the currency. Weak figures, by contrast, are likely to weigh on it. Particular attention is paid to data from Germany, France, Italy and Spain. As the euro area’s four largest economies, they represent 75% of the Eurozone’s economy.

The Trade Balance Affects Euro Demand

The Trade Balance is another release of importance to the Euro, recording the difference between a country’s export earnings and its import spending over a specified period. Strong overseas demand for a country’s exports creates additional demand for its currency as foreign buyers seek to purchase those goods, raising the currency’s value. A positive net Trade Balance therefore strengthens a currency, while a negative balance has the opposite effect.

Euro Steadies Near 1.1066 Against US Dollar as Outlook Remains Uncertain

CPI drives further hawkish repricing in Fed funds futures

Eurozone growth concerns curb expectations of more ECB tightening

EUR/USD Technical Analysis Shows Continued Downside Pressure