Euro Rises on Strong Eurozone Data and ECB Rate Hike Bets

The euro extended its gains above $1.125, reaching its strongest level since early October, as investors digested accelerating eurozone inflation while an unexpected sweeping Democratic victory in the US midterm elections weighed on the dollar. Eurozone annual inflation accelerated to 4.0% in October, its highest level since September 2023 and well above the ECB’s 2% target, mainly driven by an energy cost surge. The single currency has also drawn support from increasingly hawkish rhetoric among European Central Bank policymakers. Despite last week’s decision to leave interest rates unchanged, officials signaled that further rate increases may be necessary to contain inflationary pressures and prevent them from spilling over into wages, reinforcing expectations of a tighter monetary policy stance. Meanwhile, the unexpected US election outcome added to pressure on the dollar, while AI stocks and cryptocurrencies also declined amid concerns over tighter regulatory scrutiny.

The euro rose to $1.124, reaching its strongest level since early October, as investors dumped the US dollar following a sweeping Democratic victory in the midterm elections, with Democrats securing control of both chambers of Congress. The unexpected political shift weighed on the dollar, while AI stocks and cryptocurrencies also fell amid concerns over tighter regulatory scrutiny. Meanwhile, the euro has also drawn support from increasingly hawkish rhetoric among European Central Bank policymakers. Despite last week's decision to leave interest rates unchanged, ECB officials signaled that further rate increases may be necessary to contain inflationary pressures and prevent them from feeding through into wages, reinforcing expectations of a tighter monetary policy stance.

The euro remained steady around $1.12, holding above the 17-month lows touched last week, as hawkish comments from ECB policymakers supported the single currency despite lingering concerns over France’s fiscal outlook, while uncertainty ahead of Tuesday’s US midterm elections weighed on the dollar. On Friday, ECB policymakers, including Bank of Italy Governor Fabio Panetta and Austrian central bank chief Martin Kocher, signaled that further rate hikes may be needed to contain inflation and prevent it from spilling over into wages. Their remarks followed the ECB’s decision to leave interest rates unchanged, despite President Christine Lagarde confirming that a rate hike had been discussed. Policymakers unanimously backed the hold, citing tighter financial conditions as a factor helping to curb inflationary pressures. Meanwhile, US voters head to the polls, with Democrats favored to regain control of the House of Representatives, while the outcome of the Senate race remains uncertain.