The euro experienced an upswing, nearing its highest valuation since late October, bolstered by renewed risk appetite following the resolution of the US government shutdown. Investors are keenly observing upcoming signals from both the European Central Bank (ECB) and the Federal Reserve (Fed) regarding their respective monetary policies, contributing to a climate of anticipation and cautious optimism.
- The euro rose above $1.16.
- Risk appetite improved after the US government reopened.
- Investors are awaiting guidance on ECB and Fed policy.
- The ECB is expected to hold rates steady.
- Markets assign a 40% probability of an ECB rate cut by September 2026.
- ECB Vice President Luis de Guindos emphasized the appropriateness of current rates and urged caution.
- Expectations for a December Fed rate cut eased to around 50%.
- The easing of Fed cut expectations is attributed to the government reopening, weaker labor market signs, and divergent views among Fed officials.
This suggests a strengthening position for the euro in the short term, driven by external factors such as the US government’s reopening and reduced expectations of an imminent Fed rate cut. However, the outlook remains uncertain, heavily influenced by the future actions and pronouncements of both the ECB and the Fed. The combination of a potentially stable ECB stance and wavering confidence in immediate Fed easing provides a supportive backdrop for the euro, although this is contingent on continued economic data and central bank communication.