Euro stays under pressure as Fed and ECB interest rate decisions draw near

• EUR/USD slips for a fifth consecutive day, weighed down by a stronger US Dollar.
• The Euro faces pressure against major currencies as worries over France’s finances persist.
• Interest rate decisions from the Fed and ECB are next in focus for traders.

EUR/USD stays under pressure on Tuesday, with broad Euro (EUR) weakness and a stronger US Dollar (USD) weighing on the pair. Concerns about France’s public finances are dragging on the single currency across the board. Trading near 1.1145 at the time of writing, the pair is heading lower for a fifth successive day.

A recovery in the US Dollar is taking hold as the AI-related concerns seen last week fade and traders turn their attention back to the Federal Reserve’s (Fed) interest rate outlook. Having dropped last week to 101.45, its lowest since October 1, the US Dollar Index (DXY) now stands near 102.20, close to a two-week high. The index measures the Greenback against a basket of six major currencies.

A batch of second-tier US economic releases is also drawing traders’ attention. October’s CB Consumer Confidence reading climbs to 91.7, surpassing the forecast of 81.0 and September’s upwardly revised figure of 84.2. September Durable Goods Orders rise 1.8%, exceeding expectations of 0.6%, although orders excluding transportation come in slightly below forecasts. By contrast, ADP’s four-week average of job gains moderates from 17.5K to 16.8K.

An unchanged rate range of 3.75%-4.00% is widely anticipated when the Fed delivers its monetary policy decision on Wednesday. In September, the central bank increased rates by 25 basis points (bps), marking its first hike since 2023, as energy costs driven higher by the Middle East war intensified inflationary pressures.

Traders will scrutinise the policy statement and comments from Chair Kevin Warsh for signs that strengthen or weaken expectations of a December rate increase. Those expectations are currently priced at around 80%, according to the CME FedWatch Tool, against a backdrop of inflation remaining above the Fed’s 2% target and persistent risks in the Middle East.

Thursday brings the European Central Bank’s (ECB) policy decision. Following cumulative rate increases of 50 bps this year, policymakers are expected to leave the deposit rate unchanged at 2.50%.

In the assessment of Brown Brothers Harriman (BBH), “contained Eurozone underlying inflation and tighter financial conditions give policymakers scope to wait.” Nevertheless, the bank warns that “resilient economic activity and inflation projected to remain above target for an extended period keep a December rate hike to 2.75% firmly in play (75% priced in).”

Turning to France, BBH notes that “France’s bond market turmoil is likely to dominate ECB President Christine Lagarde’s press conference.” In the bank’s view, “reassurance that the ECB stands ready to contain unwarranted contagion can cushion EUR, but France’s fiscal troubles leave EUR/USD vulnerable to a decline toward 1.1000.”