Euro Holds Near One-Month Low Ahead of Fed Decision

The euro stabilized around $1.155, close to its weakest level in a month, as the US dollar remained supported ahead of today’s Federal Reserve decision. US policymakers are widely expected to raise interest rates by 25 basis points, marking the first hike in three years, with markets also looking for guidance on the prospect of further tightening. Meanwhile, investors have increased bets on further European Central Bank rate hikes amid renewed inflation concerns. Markets are now pricing the ECB deposit rate at around 2.9% by December, up from the current 2.5%. Further out, the rate is seen reaching 3.4% by November 2027, fully pricing a third hike and implying roughly a 50% probability of a fourth. The ECB raised rates last week for the second time this year to contain an energy-driven rise in inflation, while warning that price pressures could prove persistent, reinforcing expectations for further tightening.

The euro weakened toward $1.15, touching its lowest level since mid-August, as the dollar remained supported ahead of a widely expected Federal Reserve rate hike on Wednesday. Rising oil prices, driven by the intensifying war in the Gulf, further weighed on market sentiment. Inflationary pressures remain elevated after six months of US-Israeli conflict with Iran pushed oil prices well above $100 a barrel, disrupting the outlook for monetary policy and triggering bouts of selling in long-dated government bonds. The ECB raised rates last week and signaled that further tightening could follow, prompting markets to price in at least one more interest rate hike from the ECB this year. Attention now turns to a busy week for central banks, with the Fed decision on Wednesday followed by the Bank of England on Thursday and a widely expected Bank of Japan rate hike on Friday. The BoE is expected to leave rates unchanged, although the vote is likely to be close.

EURUSD decreased to 1.16, the lowest since August 2026. Over the past 4 weeks, Euro US Dollar lost 0.12%, and in the last 12 months, it decreased 1.67%.