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

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.