Euro ticks higher as Fed stands pat, with ECB a day away

• EUR/USD gains modestly after the Fed holds rates, remaining short of its high just above 1.1150.
• A gap of 1.25-1.50 percentage points remains between the Fed's rate and the ECB's 2.50% deposit rate.
• Thursday brings the ECB's decision, with rates also expected to remain unchanged ahead of December.

EUR/USD recovered some of its losses from the session peak just above 1.1150 as the Fed's statement lifted the pair. It remains below that peak but is trading in the upper half of Wednesday's range. With the Fed leaving rates unchanged, Thursday's European Central Bank (ECB) decision offers the final opportunity this week to alter the interest-rate differential driving EUR/USD. The ECB is also expected to keep rates steady.

The interest-rate differential has remained at 1.25-1.50 percentage points since mid-September, shaping trading in EUR/USD. On 10 September, the ECB approved its second increase this year, taking the deposit rate to 2.50%. That increase became effective on 16 September, when the Fed moved to 3.75%-4.00%. Neither central bank has changed rates since.

An unchanged rate on Thursday, followed by an increase in December, is the view held by most economists on the ECB. Before the Fed's decision, traders had assigned roughly an 80% probability to a Fed hike in December as well. Should each central bank raise rates by a quarter-point, the differential influencing EUR/USD would close the year at exactly the level in place since 16 September.

Which releases and events are next?

Growth figures from both sides of EUR/USD's interest-rate differential will be available before the weekend. Thursday's releases at 12:30 GMT comprise September's Personal Consumption Expenditures Price Index (PCE) and US third-quarter Gross Domestic Product (GDP). The ECB announces its decision at 13:15 GMT, followed by President Lagarde's press conference at 13:45 GMT. On Friday, the euro area's initial third-quarter GDP estimate is scheduled for 10:00 GMT.

Before the ECB's decision, the final word on US rates comes from Fed Chair Warsh, who takes questions at 18:30 GMT on Wednesday. Warsh said on 16 October that stronger inflation had not altered his assessment of the economy. Any further comments on December would feed into EUR/USD through the US side of the rate differential.

What do the charts show?

Intraday momentum was already oversold when the decision candle formed. Earlier, EUR/USD had fallen from its opening level to a session low just above 1.1100 before recovering. In the candles preceding the statement, the pair surrendered almost half of that rebound.

EUR/USD chart: 5-minute timeframe