Euro steadies below 1.1150 as traders brace for Fed rate decision
- EUR/USD flatlines around 1.1125 in Wednesday’s early Asian session.
- Fed is anticipated to hold the benchmark rates steady at its October meeting.
- The Fed is set to announce its latest policy decision on Wednesday; the ECB is up on Thursday.
The EUR/USD pair holds steady near 1.1125 during the early Asian session on Wednesday. Traders prefer to wait on the sidelines and avoid taking big positions ahead of the US Federal Reserve (Fed) interest rate decision on Wednesday. Attention will shift to the European Central Bank (ECB) policy meeting later on Thursday.
The Fed is widely expected to keep the benchmark interest rate unchanged at the current target range of 3.75% to 4.0% on Wednesday. Traders will closely monitor on any hints that Fed Chair Kevin Warsh gives on their outlooks.
Markets are pricing in nearly 92.8% probability that the US central bank will keep rates on hold at its October policy meeting, according to the CME FedWatch tool. The chance of a US rate hike in December stands at 84.4%.
"USD risks skew lower on a hold: hawkish messaging is broadly neutral, while a dovish hold risks outsized USD weakness," said Bank of America analysts led by Mark Cabana.
Across the pond, the Euro (EUR) was on track to be the worst-performing developed-market currency in October, down 1.70%, against the US Dollar (USD). High energy costs, the volatility in French government bonds, and worries about France's fiscal position might exert some selling pressure on the shared currency in the near term.
The ECB is set to leave its key interest rates unchanged at its upcoming meeting on Thursday following a 25 bps hike in September.
Euro struggles to rebound as ECB caution contrasts with firm Fed expectations
Strategists at Societe Generale highlight that the Euro “really hasn’t been able to manage much of a bounce, regardless of shorts,” with “energy prices, fiscal concerns and social unrest” all weighing on the single currency. They add 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 flags investment surge and AI demand risks but avoids policy pre-commitment
Fed Chair Warsh delivered a moderately constructive but slightly less impactful message, with the FXS Speechtracker score of 5.6/10 coming in below the 6.1/10 established baseline. The admission of being "over-scarred from the global financial crisis" underscores a cautious bias on financial stability even as Warsh highlights structural growth and an investment surge, reinforcing a watchful stance rather than a clear hawkish or dovish pivot. Emphasis on not pre-judging upcoming meetings and on AI’s uncertain near-term employment impact points to data dependence and a reluctance to signal a preset policy path.
The FXS Fed Sentiment Index was unchanged on the day, with a 0.00-point move leaving the index at a firmly hawkish 127.51, signaling that the speech broadly conformed to existing expectations rather than shifting the policy narrative. In combination with the middling FXS Speechtracker score, the stable FXS Fed Sentiment Index suggests that markets see Warsh’s comments as validating the current hawkish bias without adding fresh impetus for Dollar repricing.
Technical Analysis: EUR/USD retains a negative outlook below the 100-day SMA
In the daily chart, EUR/USD remains under clear bearish pressure, holding below the 20-day simple moving average (SMA) from the Bollinger Bands and well beneath the 100-day moving average, which together frame a dominant topside cap. Price is also lodged just under the lower Bollinger Band, underscoring persistent downside bias, while the Relative Strength Index (RSI) at 30.3 hovers near oversold territory, hinting that while bears are in control, the downside could be prone to intermittent corrective bounces.
On the topside, immediate resistance is located at the lower Bollinger Band around 1.1130, with additional barriers at the Bollinger mid-line near 1.1205 and the upper band at 1.1280, ahead of a more strategic hurdle at the 100-day moving average around 1.1440. With no meaningful support levels defined by the current indicator set below spot, any further weakness would leave the pair vulnerable to exploring fresh lows, while only a recovery back above the 20-day SMA would start to ease the prevailing bearish tone.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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