Euro Rebounds as ECB Leaves Door Open for Hikes

The euro rose towards $1.12, as falling oil prices supported sentiment and markets stabilized following last week's turbulence. Brent crude fell below $95 a barrel after US President Donald Trump downplayed the prospect of further strikes on Iran. However, the currency remains under pressure from France's political and fiscal challenges, as well as uncertainty surrounding ECB President Christine Lagarde's early departure. Investors are closely watching the succession race, which is increasingly shaping up as a contest between former Dutch central bank chief Klaas Knot and former Spanish governor Pablo Hernández de Cos, who currently heads the Bank for International Settlements. Both countries have nominated their former central bank chiefs to replace Lagarde in February, with the Eurogroup set to assess the candidates on 9 November. The appointment is part of a broader institutional reshuffle that also involves ECB Executive Board member Isabel Schnabel and Chief Economist Philip Lane.

The euro extended its losses, falling below $1.115 and approaching its weakest level in several months, as a stronger-than-expected US jobs report lifted the dollar. The greenback was already benefiting from safe-haven demand amid a global technology selloff, as sentiment towards AI stocks weakened on concerns that a Democratic sweep in the congressional elections could lead to tighter regulation and slow the industry's expansion. Meanwhile, ECB President Christine Lagarde said on Thursday that the ECB was monitoring incoming data to determine whether a rate hike would be warranted next month. Although the central bank kept interest rates unchanged in October, several policymakers, including the heads of the German and Italian central banks, have indicated that a December increase may be likely. Eurozone inflation rose to a three-year high of 4% in October, driven by higher energy costs, adding to the case for further monetary tightening.

The euro fell back below $1.12, retreating from one-month highs, as a global tech selloff revived demand for the safe-haven USD. Sentiment toward AI stocks weakened amid concerns that a Democratic sweep in the congressional elections could bring tighter regulation, slowing the industry's expansion. Meanwhile, investors continued to assess the European Central Bank's policy outlook. President Christine Lagarde said on Thursday that the ECB was monitoring incoming data to determine whether a rate hike would be warranted next month. Although the central bank held its deposit rate at 2.5% last week, several policymakers, including the heads of the German and Italian central banks, have signaled that a December increase may be likely. Eurozone inflation climbed to a three-year high of 4% in October, driven by energy costs, strengthening the case for further tightening. Money markets are currently pricing in two rate hikes by mid-2027, with the first potentially coming as early as December.