Euro retreats within range with all eyes on ECB’s monetary policy decision

EUR/USD pulls back to the 1.1130 area but remains contained within Wednesday's range.
A string of mixed Eurozone sentiment indicators has failed to ease pressure on the Euro.
Investors are awaiting the ECB for confirmation of a December rate hike.

Guillermo Alcala FXStreet

The Euro (EUR) trades lower against the US Dollar (USD) on Thursday, with price action contained within Wednesday’s range, as investors bide their time ahead of the European Central Bank’s (ECB) monetary policy decision. The EUR/USD pair edges down to the 1.1130 area from highs near 1.1170 on Wednesday, with bears looking at the 17-month low at 1.1113.

Sentiment data released by the European Commission on Thursday was mixed. Business Climate picked up to 0.09 in October from -0.05 in September, reaching positive figures for the first time in the last three years, while Consumer Confidence remained unchanged at -17.9, and the Economic Sentiment Index declined to 96.9 against market expectations of a steady 97.5 reading.

France poses an additional challenge for the ECB

Later in the day, the ECB is widely expected to leave its Deposit Facility rate unchanged at 2.5% and, highly likely, to hint at further monetary tightening ahead, as the high Oil prices stemming from the Middle East war are boosting consumer inflation at levels well above the ECB’s target.

The main topic at the meeting, however, is likely to be France’s debt, which has reached concerning levels, boosting French Treasury yields to 24-year highs and throwing a spanner in the works for the central bank’s monetary policy plans.

Commerzbank analysts warn that “every interest rate hike by the ECB naturally also raises yields and thus exacerbates France’s problem of getting its public debt under control due to rising interest payments.” This might prompt the ECB to adopt a more cautious approach on future rate hikes, and erode one of the few Euro supports as of now.

The ECB Governing Council announced earlier in the day that President Christine Lagarde will step down in February 2027, without giving any clue about who will replace her. The impact on the Euro was minimal.

In the US, the Federal Reserve (Fed) met expectations and left rates unchanged on Wednesday. Chairman Kevin Warsh’s comments, however, were considered dovishly tilted, especially his confidence that the “monetary medicine is starting to work”, which suggests that the bank might not have to hike rates as much as the market expects. The US Dollar eased moderately following the Fed’s press release.

Economic Indicator

Business Climate

Business climate indicator, released by European Comission, is based on monthly surveys and is designed to deliver a clear and timely assessment of the cyclical situation within the euro area. It may be interpreted as a survey result: a high level indicates that, overall, the surveys point to a healthy cyclical situation. Conversely, a low level points to an adverse business climate. A rise (a fall) in the indicator will point to an upswing in activity and an improvement (deterioration) in the business climate. Its movement is clearly linked to the industrial production of the euro area.

Economic Indicator

Economic Sentiment Indicator

The Euro Zone Economic Confidence released by the European Commission is a survey of consumers confidence in economic activity. It indicates the trend of the overall Euro Zone economy. An optimistic view of consumers is considered as positive for the EUR, whereas a pessimistic view is considered as negative.

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