Euro Slips as Dollar Holds Firm Ahead of US CPI

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.

The euro climbed back above $1.12, attempting to recover from 17-month lows, as renewed declines in oil prices and uncertainty surrounding Tuesday’s US midterm elections weighed on the US dollar. The recovery came despite persistent concerns over France’s fiscal outlook, following Fitch Ratings’ decision to revise the country’s outlook to negative in an unscheduled review last week. Oil prices fell after reports suggested US President Donald Trump was willing to give diplomatic efforts with Iran more time before considering renewed military strikes following Tuesday’s midterm elections, which could reshape the balance of power in Congress. Meanwhile, the ECB kept interest rates unchanged on Thursday, offering little guidance on the future policy path. President Christine Lagarde confirmed that a rate hike had been discussed, but policymakers unanimously opted to maintain borrowing costs, citing tighter financial conditions as one factor helping to contain inflationary pressures.

The euro ended the month around $1.12, posting a monthly decline of more than 1% against the USD and hovering near its lowest level in over a year. The currency remained under pressure from concerns over France's fiscal outlook and the European Central Bank's cautious approach to further monetary tightening. Eurozone growth data released on Friday showed a slowdown in economic activity in Q3, with France unexpectedly slipping into contraction as falling exports and investment weighed on output. Social unrest added to uncertainty, pushing French OAT yields to their highest levels in over two decades, while inflation remained persistent across the region. On Thursday, the ECB kept interest rates unchanged, while avoiding firm signals about the future policy path. President Christine Lagarde confirmed that a rate hike had been discussed, but policymakers unanimously opted to hold rates steady, pointing to tighter financial conditions as a factor helping to contain price pressures.