Euro: Fed focus keeps pressure against US Dollar – Commerzbank

Commerzbank’s Volkmar Baur notes that EUR/USD slid to its lowest level since May 2025, but recent Eurozone data and the ECB Bank Lending Survey may be overshadowed by the upcoming Fed decision. With markets expecting a December hike and two more next year, the Dollar is seen staying firm as long as those expectations are not challenged.

Dollar strength tied to Fed expectations

"After expressing some surprise late last week that the euro had not weakened more significantly against the US dollar, EUR/USD fell all day in yesterday’s session and eventually closed at 1.1120, its lowest level since May 2025. However, the usual suspects of recent weeks, the Franco-German interest-rate differential and oil prices, were not behind yesterday’s move. At least not directly."

"The euro came under considerably greater pressure at 10 a.m., however, when the ECB published its Bank Lending Survey. In particular, firms reported a marked decline in demand for new loans, citing, among other factors, weaker investment plans. Households also remained cautious about taking out mortgages in the wake of higher interest rates. All in all, this does not bode well for the euro-area economy."

"This does not change the expectations, however. Rates are likely to remain unchanged tonight, and if Kevin Warsh sticks to his usual line, as seems likely, the press conference should contain few, if any, clues about December. For the dollar, though, that may be enough. The market expects a rate hike in December and two more next year. As long as nothing is said to dampen those expectations, the US dollar is likely to remain firm."

"Today, however, all of this is likely to take a back seat for EUR/USD, as the focus shifts to the Fed. The rate decision will be announced at 6:00 p.m. GMT, followed 30 minutes later by Kevin Warsh’s press conference. While Europe has already switched back to standard time, the US will not do so until this weekend, meaning that we are currently only five hours ahead of the US East Coast."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)