The euro traded little changed near its yearly lows on Thursday as the dollar slipped from two-week peaks after the Federal Reserve held rates. Traders now wait for the European Central Bank decision, where policymakers are widely expected to keep the deposit facility rate at 2.50%.
The euro stayed near $1.1125 ahead of the ECB's Governing Council decision at 1315 GMT. The dollar index, which tracks the greenback against a basket of six major currencies, eased to 102.17.
Fed hold leaves the December path open
The Federal Open Market Committee left the target range unchanged at 3.75% to 4.00% on Wednesday, even as two policymakers dissented in favor of an immediate 25-basis-point increase. Chair Kevin Warsh did not commit to a December trajectory, so money markets scaled back expectations for rate hikes in 2027.
Even so, interest-rate futures still price a 78% probability of an increase at the final FOMC meeting of the year. According to ING's Francesco Pesole: "A December hike remains in play," he said.
Euro faces ECB decision and French bond yields
Eurozone headline inflation reached 3.8% in September amid elevated energy benchmarks. At the same time, rising sovereign bond yields, particularly in France, have driven regional financial conditions tighter.
French 10-year yields broke above 5.14% last week before pulling back below 5% after Moody's maintained the country's Aa3 rating. France's spread over German Bunds is hovering near 158 basis points, and domestic consumer confidence has slumped to a 13-year low.
Deutsche Bank analysts said a balanced overall tone is possible because higher yields and tighter financial conditions leave room for it. A signal endorsing the roughly 80% market-implied odds of a December hike could spark a short-covering bounce in the euro, while a noncommittal stance risks exposing technical support toward 1.1065 and 1.0880.
PCE data due for the dollar
The immediate direction for the dollar hinges on the September PCE price index, due at 1230 GMT. Forecasts center on a 0.3% monthly rise in the core measure, with headline annual inflation projected to accelerate to 3.6% from 3.4%.
An upside surprise would reaffirm expectations of a December hike and could push the dollar back toward its yearly highs above 102.50.
Source: Investing.com
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