EUR/USD maintains its optimism well in place, advancing for the sixth consecutive day and looking to leave behind the 1.1600 barrier on a more sustainable tone on Monday.
The pair’s robust performance comes on the back of extra weakness in the US Dollar (USD), which receded to new three-week lows near the 99.00 neighbourhood when measured by the US Dollar Index (DXY) earlier in the day.
The persistent downward trend in the Greenback remains propped up by the idea of another 25-basis-point rate cut by the Federal Reserve (Fed) next week, while the view of a generalised more dovish Fed in the months to come also contributes to the sentiment.
Washington: Not quite out of the woods
The US government may have reopened after a 43-day shutdown, but there’s no sigh of relief on Capitol Hill just yet. Lawmakers only agreed to keep the lights on until January 30, which means another budget showdown is already scheduled into the calendar.
What’s interesting this time is who dug in their heels. Normally, it’s Republicans demanding cuts and restraint. But now Democrats are the ones taking a stand, arguing that the temporary halt helped shine a spotlight on soaring healthcare insurance costs affecting around 24 million Americans. Republicans fired back that the standoff caused avoidable disruptions: Delayed benefits, unpaid workers, and halted services, all while the national debt continues to balloon toward $38 trillion, growing by roughly $1.8 trillion per year. Hardly a backdrop that suggests fiscal peace is coming anytime soon.
Fed: Good reason to stay cautious
The Federal Reserve did exactly what markets expected on October 29: A 25 basis point cut and a modest restart of Treasury purchases to help money markets function smoothly. The Fed Funds Target Range (FFTR) now sits at 3.75%–4.00% after a 10–2 vote.
The tone from Chair Jerome Powell was clear: This was an insurance cut, not the launch of a major easing cycle. Policymakers remain divided, and Powell stressed that a December cut isn’t guaranteed.
The Minutes underlined that tension. Yes, most Fed members thought a trim made sense, but several warned about acting too quickly and losing progress on inflation, which is still above that 2% target.
Markets, though, are sticking with their dovish instincts. Pricing still indicates a nearly 94% odds of another cut on December 10, and around 87 basis points of easing by the end of 2026.
ECB: Happy to keep coasting
Over in Europe, the European Central Bank (ECB) delivered another steady-as-she-goes decision, leaving policy unchanged at 2.00% for a third straight meeting. With inflation and growth hovering near the ECB’s comfort zone, and after 200 basis points of cuts already this year, officials see no need to jump into action again.
President Christine Lagarde did admit that the global risk backdrop feels a bit calmer, helped by easing tensions between the US and China. But uncertainty is still high, and policymakers aren’t eager to reverse course prematurely.
The Accounts released last week showed a broad belief that no further easing may be necessary for now. Markets seem to agree, as they’re pricing in nearly a 98% chance of unchanged rates at the next meeting and only minor tweaks through 2026.
Tech corner
EUR/USD remains firm following US Dollar dynamics, although a challenge to the 1.1660 region should prove to be a tough one.
Further upside impetus is expected to confront the November top at 1.1656 (November 13). The break above this region exposes a potential move to the weekly highs at 1.1668 (October 28) and 1.1728 (October 17), all ahead of the October ceiling at 1.1778 (October 1).
In contrast, the breach below the weekly trough at 1.1491 (November 21) could open the door to a visit to the November floor at 1.1468 (November 5) prior to the critical 200-day SMA at 1.1437. Down from here comes the August base at 1.1391 (August 1), while a deeper pullback could put the weekly low at 1.1210 (May 29) and then the May valley at 1.1064 (May 12) back on the radar.
Additionally, the pair’s near-term outlook still appears promising. That said, the Relative Strength Index (RSI) rose past the 55 level, indicating improving upside momentum, although the Average Directional Index (ADX) below 12 still signals a weak trend.
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Bottom line
EUR/USD is still struggling to regain the bullish spark it had earlier this year, and the Eurozone isn’t really giving investors much of a fresh story to work with. Until the Fed signals it’s fully committed to easing, global risk appetite improves, or European assets become more attractive, the Euro (EUR) will likely keep taking its cues from the Greenback side of the equation.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
