Euro holds steady below 1.1150 ahead of Fed rate decision

At around 1.1125, EUR/USD is little changed in early Asian trading on Wednesday.
An unchanged benchmark interest rate is expected from the Fed at its October meeting.
Wednesday brings the Fed’s latest policy announcement, followed by the ECB’s decision on Thursday.

With an interest rate decision due from the US Federal Reserve (Fed) on Wednesday, EUR/USD is trading close to 1.1125 with little movement in the early Asian session. Traders are opting to remain on the sidelines rather than establish sizeable positions before the announcement. The European Central Bank (ECB) policy meeting on Thursday will then become the focus.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

An unchanged benchmark interest rate, within the current target range of 3.75% to 4.0%, is widely anticipated when the Fed announces its decision on Wednesday. Any indications from Fed Chair Kevin Warsh about the outlook will come under close scrutiny from traders.

According to the CME FedWatch tool, markets assign a probability of nearly 92.8% to the US central bank leaving rates unchanged at its October policy meeting. For December, the probability of a US rate increase is 84.4%.

Bank of America analysts led by Mark Cabana said: "USD risks skew lower on a hold: hawkish messaging is broadly neutral, while a dovish hold risks outsized USD weakness,"

A decline of 1.70% against the US Dollar (USD) had put the Euro (EUR) on course to rank as October’s weakest developed-market currency. In the near term, elevated energy costs, volatility in French government bonds and concerns over France’s fiscal position could put the single currency under selling pressure.

Following September’s 25 bps increase, the ECB is set to keep its key interest rates on hold at Thursday’s forthcoming meeting.

Euro recovery falters as ECB caution meets firm Fed expectations

According to strategists at Societe Generale, the Euro “really hasn’t been able to manage much of a bounce, regardless of shorts,” as “energy prices, fiscal concerns and social unrest” continue to weigh on it. Their assessment remains that “if the FOMC message (whatever that looks like in the brave new world) keeps December hike expectations alive, our bias is to remain dollar-positive, and unless the ECB is very hawkish, European economic fundamentals will weigh.”

Warsh highlights investment surge and AI demand risks without committing to a policy path

At 5.6/10, the FXS Speechtracker score for Fed Chair Warsh’s remarks fell short of the established 6.1/10 baseline, reflecting a moderately constructive but slightly less impactful message. Warsh’s acknowledgement of being "over-scarred from the global financial crisis" points to caution over financial stability. Alongside his emphasis on structural growth and a surge in investment, it supports a watchful approach rather than a distinct hawkish or dovish shift. His insistence on not prejudging forthcoming meetings, together with the uncertain near-term effect of AI on employment, signals a data-dependent approach and an unwillingness to set out a predetermined policy course.

A 0.00-point daily move left the FXS Fed Sentiment Index unchanged at a firmly hawkish 127.51. This indicates that the speech largely matched existing expectations rather than altering the policy narrative. Taken together, the middling FXS Speechtracker score and the steady FXS Fed Sentiment Index suggest markets view Warsh’s remarks as confirming the prevailing hawkish bias, without providing a new catalyst for repricing the Dollar.

Technical Analysis: EUR/USD stays under pressure beneath the 100-day SMA

On the daily chart, the 20-day simple moving average (SMA), which forms the Bollinger Bands’ mid-line, and the 100-day moving average together provide a substantial ceiling for EUR/USD. The pair trades below the former and well below the latter, maintaining clear bearish pressure. Its position just beneath the lower Bollinger Band also reinforces the downside bias. Meanwhile, a Relative Strength Index (RSI) reading of 30.3 is close to oversold territory, suggesting that although sellers remain in control, occasional corrective rebounds could interrupt further declines.

The lower Bollinger Band, around 1.1130, provides the first resistance level. Beyond that lie the Bollinger mid-line near 1.1205 and the upper band at 1.1280, followed by the more significant obstacle of the 100-day moving average around 1.1440. The current indicators identify no meaningful support below the spot price, leaving the pair exposed to fresh lows if weakness persists. Only a move back above the 20-day SMA would begin to temper the prevailing bearish tone.

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

Euro: frequently asked questions

The Euro’s role in currency markets

Used by the 20 European Union countries within the Eurozone, the Euro ranks second only to the US Dollar among the world’s most actively traded currencies. Its share of all foreign exchange transactions reached 31% in 2022, with average daily turnover exceeding $2.2 trillion. The world’s busiest currency pair is EUR/USD, with an estimated 30% of all transactions. It is followed by EUR/JPY at 4%, EUR/GBP at 3% and EUR/AUD at 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 its principal mandate, requiring either the containment of inflation or support for growth. Adjustments to interest rates are its main instrument. Higher rates relative to other economies, or expectations that rates will rise, generally support the Euro; the reverse also applies. Monetary policy is determined by the ECB Governing Council, which meets eight times a year. The decision-makers comprise the heads of the Eurozone’s national banks and six permanent members, among them ECB President Christine Lagarde.

Inflation figures shape the Euro’s value

Measured using the Harmonised Index of Consumer Prices (HICP), Eurozone inflation is a key economic gauge for the Euro. An inflation reading above expectations, particularly one exceeding the ECB’s 2% target, obliges the central bank to increase interest rates to regain control over prices. Interest rates that are relatively high compared with those of other economies generally support the Euro by making the region a more attractive destination for global investors’ funds.

Economic releases help determine the Euro’s direction

By providing a measure of economic health, data releases can affect the Euro’s value. GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys are among the indicators capable of moving the single currency. Economic strength supports the Euro both by drawing in more foreign investment and by potentially prompting the ECB to raise interest rates, directly strengthening the currency. Weak economic readings, by contrast, are likely to depress the Euro. Particular weight is attached to figures from Germany, France, Italy and Spain, the euro area’s four largest economies. Together, they represent 75% of the Eurozone economy.

The Trade Balance affects demand for the Euro

The Trade Balance is another important release for the Euro, recording the gap between a country’s export earnings and its spending on imports over a specified period. Strong overseas demand for a country’s exports increases demand for its currency as foreign buyers seek to purchase those goods, lifting its value. A positive net Trade Balance therefore supports a currency, while a negative balance has the opposite effect.

Euro holds steady below 1.1150 ahead of Fed rate decision

Euro recovery falters as ECB caution meets firm Fed expectations

Warsh highlights investment surge and AI demand risks without committing to a policy path

Technical Analysis: EUR/USD stays under pressure beneath the 100-day SMA