Euro posts modest gains as Fed stands pat, with ECB a day away

• EUR/USD's high just above 1.1150 remains out of reach as the pair inches higher following the Fed's hold.
• A 1.25-1.50 point gap remains between the Fed's rate and the ECB's 2.50% deposit rate.
• Thursday brings the ECB decision, with rates also expected to stay unchanged ahead of December.

EUR/USD remains below its session high just above 1.1150. Following the Fed's decision to leave rates unchanged, the pair advanced on the statement, recovering some of its retreat from that peak. It is now in the upper half of Wednesday's range. Thursday's European Central Bank (ECB) decision offers the final opportunity this week for a change in EUR/USD's interest rate differential, although another hold is expected.

A 2.50% deposit rate was agreed by the ECB on 10 September, marking its second increase this year. The increase became effective on 16 September, when the Fed raised its rate to 3.75%-4.00%. With neither central bank adjusting rates since then, the Fed retains a 1.25-1.50 point premium over the ECB. That differential has shaped EUR/USD trading since mid-September.

An ECB hold on Thursday followed by a December increase is the expectation among most economists. Before the Fed decision, traders had assigned roughly an 80% probability to a Fed hike in December. Should both central banks raise rates by a quarter-point, EUR/USD's rate differential would finish the year unchanged from 16 September.

12:30 GMT Thursday: US PCE and GDP

Thursday's releases at 12:30 GMT include 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. At 10:00 GMT on Friday, the euro area publishes its initial third-quarter GDP estimate. Growth figures from both sides of EUR/USD's rate differential will therefore be available before the weekend.

At 18:30 GMT on Wednesday, Fed Chair Warsh answers questions, providing the final commentary on US rates before the ECB decision. On 16 October, he said stronger inflation had not altered his assessment of the economy. Any further remarks on December will feed into EUR/USD through the US side of the rate differential.

Above 1.1100: EUR/USD's Intraday Recovery

After falling from its opening level, EUR/USD reached a session low just above 1.1100 before recovering. Almost half of that rebound was surrendered in the bars preceding the statement. Intraday momentum was already oversold when the decision bar formed.

5-minute EUR/USD chart