Euro ticks higher as Fed holds, with ECB a day away

• EUR/USD inches higher after the Fed holds rates, remaining below its peak just above 1.1150.
• At 2.50%, the ECB's deposit rate remains 1.25-1.50 points below the Fed's rate.
• Thursday brings the ECB's decision, with rates also expected to remain unchanged ahead of December.

With the Fed leaving rates unchanged, the European Central Bank (ECB) decision on Thursday offers the final opportunity this week for a shift in the interest-rate differential underpinning EUR/USD. The ECB is also expected to hold. Following the Fed's statement, the pair advanced, recovering some of its decline from the session peak just above 1.1150. It remains short of that level but is trading in the upper half of Wednesday's range.

A September 10 decision by the ECB lifted its deposit rate to 2.50%, marking its second increase of the year. That rise became effective on September 16, coinciding with the Fed's move to 3.75%-4.00%. With both rates unchanged since then, the Fed retains a 1.25-1.50-point premium over the ECB. This is the differential that has shaped EUR/USD trading since mid-September.

An unchanged ECB rate on Thursday followed by an increase in December is the expectation of most economists. Before the Fed's decision, traders had assigned roughly an 80% probability to a Fed increase in December. Quarter-point rises by both central banks would leave the rate differential driving EUR/USD at year-end exactly where it has stood since September 16.

Growth and inflation releases share the calendar with the ECB

Thursday's releases at 12:30 GMT include the September Personal Consumption Expenditures Price Index (PCE) and US third-quarter Gross Domestic Product (GDP). After the ECB announces its decision at 13:15 GMT, ECB President Lagarde holds her press conference at 13:45 GMT. Friday brings the euro area's initial third-quarter GDP estimate at 10:00 GMT, meaning growth figures from both sides of EUR/USD's rate differential will be available before the weekend.

Before the ECB makes its decision, the final comments on US rates come from Fed Chair Warsh, who takes questions at 18:30 GMT on Wednesday. On October 16, he said stronger inflation had not altered his assessment of the economy. Any further remarks on December will feed into EUR/USD through the US side of the rate differential.

EUR/USD rebounds from its intraday low

After falling from its opening level, EUR/USD found a session low just above 1.1100 and subsequently recovered. Almost half of that rebound was then surrendered in the bars preceding the statement. By the time the decision bar formed, intraday momentum was already oversold.

EUR/USD chart: 5-minute timeframe