Euro ticks down from session highs ahead of the ECB monetary policy decision

EUR/USD remains steady above 1.1600 with rallies capped below Wednesday's highs at 1.1654.
Risk aversion is keeping Euro gains subdued, with all eyes on the ECB monetary policy decision.
The Dollar remains on its back foot ahead of the US CPI release, which keeps the pair from depreciating further.

Guillermo Alcala FXStreet

The Euro (EUR) has given away previous gains against the US Dollar (USD) on Thursday, pulling back to the 1.1620 area, from session highs above 1.1640. The risk-off sentiment amid high Oil prices and surging global yields is keeping EUR/USD rallies subdued, with investors awaiting the outcome of the European Central Bank’s (ECB) monetary policy meeting, due later on the day.

The ECB is widely expected to hike rates for the second time this year, bringing its benchmark Rate on Deposit Facilities to 2.5% from the current 2.25%. The main focus of the event, however, will be on President Lagarde’s press conference for further insight into the bank's plans, amid rising inflationary pressures as the Middle East Conflict pushes energy prices higher.

Earlier in the day, Germany’s final Harmonised Index of Consumer Prices (HICP) confirmed preliminary figures of a 0.2% increase in August and a 2.9% year-over-year (Y-o-Y) gain, from 0.9% and 2.8% respectively in July. The impact of these figures on the Euro has been marginal.

Euro holds within range as the USD loses its safe-haven role

The Greenback, on the other hand, is failing to draw support from its traditional safe-haven status, weighed down by a mix of circumstances, namely the US Dollar debasement trade, amid the disappointment over the US Treasury's bond buyback program, USD/JPY carry trade unwinding, and growing concerns about the ballooning US government debt.

FX Strategists at Brown Brothers Harriman argue that “even if a September Fed hike becomes a done deal, we doubt USD will make new cyclical highs,” as “tightening by other major central banks limits policy divergence, with the ECB widely expected to deliver a 25bps hike.”

In the US calendar, Producer Price Index (PPI) data, due later in the day, is expected to show that inflation accelerated to a 5.3% Y-o-Y rate in August from 4.7% in July. The main focus this week, however, is on the Consumer Price Index (CPI) release, due on Friday, which will be analysed in detail to confirm market expectations of a Federal Reserve (Fed) rate hike next week.

Economic Indicator

ECB Rate On Deposit Facility

One of the European Central Bank's three key interest rates, the rate on the deposit facility, is the rate at which banks earn interest when they deposit funds with the ECB. It is announced by the European Central Bank at each of its eight scheduled annual meetings.

Economic Indicator

ECB Press Conference

Following the European Central Bank’s (ECB) economic policy decision, the ECB President gives a press conference regarding monetary policy. The president’s comments may influence the volatility of the Euro (EUR) and determine a short-term positive or negative trend. If the president adopts a hawkish tone it is considered bullish for the EUR, whereas if the tone is dovish the result is usually bearish for the Euro.

AUD/USD consolidates above 0.7000; remains close to monthly top

AUD/USD holds steady above 0.7000 during the Asian session on Friday, trading just below the previous day's monthly low amid diverging forces. A hawkish RBA continues to support the Aussie, while the recent decline in US bond yields keeps the US Dollar depressed near a three-week low. However, oil-driven inflation fears reinforce Fed hike bets, which, along with geopolitical risks, could benefit the safe-haven buck and cap the currency pair.

USD/JPY bounces off one-month low; climbs to 157.00 amid reviving USD demand

USD/JPY rebounds from the 156.00 neighborhood, or a one-month low touched during Friday’s Asian session, with bulls looking to extend momentum beyond 157.00 amid the emergence of some US Dollar buying. Meanwhile, Japan's National CPI rose to a nine-month peak and reaffirmed BoJ rate-hike bets, which could support the Japanese Yen and cap gains for the currency pair.

Gold treads water around $4,000

Gold prices maintain its offered stance in place at the end of the week, hovering around the key $4,000 threshold per troy ounce. The persistent selling bias in the precious metal comes amid decent gains in the US Dollar and an acceptable rebound in US Treasury yields across the curve, all alongside further upside traction in crude oil prices.

Crypto Today: Bitcoin holds the 50-day EMA as Ethereum and XRP face structural resistance

Bitcoin gradually ticks up on Friday, trading above $81,000. The Crypto King has recently defended structural support near $80,000, reinforcing the prevailing bullish outlook. Ethereum similarly edges higher above $2,400, while Ripple trades above $1.32 after testing support around $1.30.

The French bond panic is overdone. Here's what the market is misreading

France's 10-year government bond yield has climbed above 5%, reigniting fears of a sovereign debt crisis in the Eurozone. With public debt exceeding €3.5 trillion, persistent budget deficits and a fragmented political landscape, investors are increasingly questioning the French government's ability to stabilize its finances.

What November 3 means for the Fed's rate path and the US Dollar

The USD faces a decisive period ahead of the November 3 midterm elections. While markets anticipate another interest rate increase from the Fed in December, the battle for control of Congress could reshape fiscal policy expectations and, indirectly, the path of US monetary policy in 2027.