FX.co ★ Euro Slightly Up on ECB-Fed Policy Divergence

The euro has solidified its position above the $1.15 threshold, making strides to recuperate from a three-month low, as investors consider differing policy outlooks from the European Central Bank (ECB) and the US Federal Reserve. Currently, projections suggest the ECB will maintain stable interest rates for the foreseeable future, with money markets now estimating only a 45% likelihood of a rate reduction by September 2026—significantly down from over 80% in October. Meanwhile, ECB officials have adopted a cautious approach: François Villeroy de Galhau emphasized the importance of keeping policy options open, Joachim Nagel called for vigilance regarding inflation, and Vice President Luis de Guindos remarked that any decrease in inflation to below 2% would likely be short-lived. Conversely, the US dollar has faced downward pressure following data from Challenger, which indicated that layoffs have reached a 20-year peak for October. This development has reignited speculation concerning a potential near-term rate cut by the Fed, overshadowing the previous day’s upbeat ADP and ISM reports.