Euro Climbs as Odds of December U.S Fed Rate Cut Shifts
The European single currency, the euro (EURUSD), climbed toward $1.1557 on Tuesday, its strongest level since November 18, as investors sold the dollar following weaker-than-expected US economic data.
The US dollar is mostly narrowly mixed against the G10 currencies amidst postponement of key economic data. The dollar index weakened amidst economic uncertainties in the US.
Markets concerns over political influence on US economic institutions, including the Federal Reserve and the Bureau of Labor Statistics, are also seen as undermining confidence in the Dollar.
In a note, UBS still expects that the dollar will lose some ground during 2026 as US real yields decline, but it expects that EUR/USD gains will be held to around 1.20 with two-sided risks.
The bank’s central case is that interest rates and yields will dominate during 2026. It expects that the Federal Reserve will cut rates towards 3.00% amid a slowdown in the economy and weaker labour market.
The odds of a December cut have shifted sharply again and are now back around 80 percent after a series of dovish comments from Federal Reserve officials.
John Williams provided the strongest signal by saying he sees room for an adjustment in the near term. Despite this, the US dollar has barely reacted, although it does appear vulnerable to a downside move.
US retail sales rose less than forecast in September, while ADP data showed job losses intensifying in the four weeks ending November 8.
Producer price inflation rose 0.3% month-over-month, in line with expectations. The soft data, combined with dovish comments from several Federal Reserve officials, reinforced expectations that the Fed will deliver its third rate cut of the year in December.
Meanwhile, the European Central Bank is expected to keep interest rates unchanged throughout 2026, citing a resilient economy and inflation near target.
ECB policymakers noted that the central bank “is in a good place,” though concerns persist over strong inflation in groceries and services, with member Joachim Nagel emphasizing ongoing vigilance.
The ECB kept rates unchanged at 2.00% for a third meeting in a row. With both inflation and growth sitting close to target, and after 200 basis points of cuts earlier this year, officials see little reason to adjust policy further.
ECB President Christine Lagarde highlighted the slight easing of global risks thanks to the US–China truce and targeted US tariff rollbacks, but she also made clear that uncertainty remains high.
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