Euro under pressure as Fed and ECB interest rate decisions draw near

• A fifth consecutive day of EUR/USD declines accompanies renewed US Dollar strength.
• Against its major counterparts, the Euro remains under pressure from concerns over France’s finances.
• Interest rate decisions from the Fed and ECB are next in focus for traders.

EUR/USD trades near 1.1145 at the time of writing. Tuesday’s decline extends its losing run to a fifth consecutive day. Concerns over France’s public finances weigh broadly on the Euro (EUR), with a stronger US Dollar (USD) adding to the pair’s losses.

Near a two-week high, the US Dollar Index (DXY) trades around 102.20. The index measures the Greenback against a basket of six major currencies. It had dropped to 101.45 last week, its weakest since 1 October. As last week’s AI-related concerns ease, the US Dollar is recovering and traders are turning their attention back to the Federal Reserve’s (Fed) interest rate outlook.

Second-tier US economic releases are also drawing traders’ attention. October CB Consumer Confidence climbs to 91.7, exceeding the 81.0 forecast and September’s upwardly revised reading of 84.2. September Durable Goods Orders rise 1.8%, compared with expectations of 0.6%, although orders excluding transportation fall slightly short of forecasts. By contrast, ADP’s four-week average of job gains slows from 17.5K to 16.8K.

An unchanged rate range of 3.75%-4.00% is widely expected when the Fed delivers its monetary policy decision on Wednesday. September saw the central bank increase rates by 25 basis points (bps), its first rise since 2023. Higher energy costs stemming from the war in the Middle East had intensified inflationary pressures.

According to the CME FedWatch Tool, markets currently price in around an 80% probability of a December rate rise. Traders will assess whether the policy statement and comments from Chair Kevin Warsh strengthen or moderate those expectations. Inflation remains above the Fed’s 2% target, while risks in the Middle East persist.

Thursday brings the European Central Bank’s (ECB) decision. Following cumulative rate increases of 50 bps this year, policymakers are expected to leave the deposit rate at 2.50%.

Scope to pause remains, according to Brown Brothers Harriman (BBH), which argues that “contained Eurozone underlying inflation and tighter financial conditions give policymakers scope to wait.” However, the bank also warns that “resilient economic activity and inflation projected to remain above target for an extended period keep a December rate hike to 2.75% firmly in play (75% priced in).”

Turning to France, BBH notes that “France’s bond market turmoil is likely to dominate ECB President Christine Lagarde’s press conference.” In the bank’s assessment, “reassurance that the ECB stands ready to contain unwarranted contagion can cushion EUR, but France’s fiscal troubles leave EUR/USD vulnerable to a decline toward 1.1000.”