Euro stays under pressure as Fed and ECB interest rate decisions approach

• A stronger US Dollar leaves EUR/USD lower for a fifth consecutive day.
• Concerns about France’s public finances weigh on the Euro against its major counterparts.
• Fed and ECB rate decisions come into focus for traders.

Trading at around 1.1145 at the time of writing, EUR/USD is heading lower for a fifth successive day on Tuesday. The Euro (EUR) is losing ground across the board as worries about France’s public finances persist, with renewed strength in the US Dollar (USD) adding to the pair’s losses.

As last week’s concerns surrounding AI recede, attention is returning to the Federal Reserve’s (Fed) interest rate outlook, helping the US Dollar recover. Having dropped last week to 101.45, its lowest since 1 October, the US Dollar Index (DXY) now stands at around 102.20, close to a two-week high. The index measures the Greenback against a basket of six major currencies.

October’s CB Consumer Confidence reading climbs to 91.7, exceeding the forecast of 81.0 and September’s upwardly revised 84.2, as traders assess second-tier US economic releases. September’s Durable Goods Orders rise 1.8%, outpacing expectations of 0.6%, although the measure excluding transportation falls slightly short of forecasts. By contrast, ADP’s four-week average of job gains slips from 17.5K to 16.8K.

An unchanged rate range of 3.75%-4.00% is widely anticipated 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, after higher energy costs associated with the war in the Middle East intensified inflationary pressures.

According to the CME FedWatch Tool, markets currently price in around an 80% chance of a December rate rise. With inflation remaining above the Fed’s 2% target and risks in the Middle East unresolved, traders will assess whether the policy statement and comments from Chair Kevin Warsh strengthen or moderate those expectations.

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

In Brown Brothers Harriman’s (BBH) assessment, “contained Eurozone underlying inflation and tighter financial conditions give policymakers scope to wait.” The bank nevertheless 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).”

Looking ahead to the press conference, BBH notes that “France’s bond market turmoil is likely to dominate ECB President Christine Lagarde’s press conference.” In the bank’s view, “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.”