The euro weakened further against the US dollar in Wednesday’s trading, with EUR/USD hovering around 1.1125. The currency pair remains under pressure following several sessions of decline, while the dollar holds near a two-week high ahead of the Federal Reserve’s interest rate decision.
The dollar’s strength is supported by investor caution leading up to the FOMC meeting. While the Fed is expected to keep interest rates unchanged, the primary focus is on whether the central bank will signal a potential rate hike in December. Additionally, the yield on the 10-year US Treasury note has climbed back above 5%, further boosting the dollar’s appeal.
On the euro side, pressure stems from high energy prices and concerns regarding France’s fiscal situation. Rising energy costs threaten to sustain inflationary pressure in the Eurozone while weighing on economic growth, and fiscal uncertainty in France has left investors wary of European assets.
The market is also awaiting the European Central Bank’s (ECB) decision on Thursday. The ECB is expected to maintain its deposit rate at current levels, but investors will be watching closely to see if inflationary pressures and energy prices open the door for further tightening. The divergence in policy expectations between the Fed and the ECB continues to provide a relative advantage to the dollar.
In the short term, the direction of EUR/USD will largely depend on the policy tone set by the Fed and the ECB. A hawkish signal from the Fed could push the pair back toward the 1.1100–1.1000 range, whereas more dovish commentary might pave the way for a rebound in the euro following the pressure seen over the last few sessions. (CP)