Euro Under 1.12 as Fed Holds Firm, but Prices Creep Higher
Euro under 1.12 for the first time since October 14, as traders brace for Wednesday's Fed decision and Thursday's ECB meeting on rates.
The euro slipped under 1.12 on Monday, closing below 1.1200 for the first time since October 14 and at its lowest level since October 15, as dollar buying ahead of this week's Federal Reserve meeting overwhelmed a stronger than expected German survey. With the Fed's decision due Wednesday and the European Central Bank's due Thursday, a euro under 1.12 has become the clearest marker of how far the dollar has pulled ahead.
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What Happened to the Euro This Week
Germany's Ifo business climate survey beat forecasts on Monday, rising to 90.2 against an expected 89.8. EUR/USD rose briefly on the release but was back under its pre-release level by the 11th five-minute bar. Dollar buying tied to the upcoming Federal Open Market Committee meeting then pushed the pair to its lowest since October 15, and it closed at that low.
Behind the move, the US two-year yield rose to about 4.71% ahead of the Fed meeting. The Fed's current 3.75% to 4.00% range already sits well above the ECB's 2.50% deposit rate, and futures now put the odds of a December Fed hike near 80%, a move that would widen that gap further in the dollar's favour.
Euro Under 1.12: Why the Rate Gap Matters
The case for taking this move seriously starts with the data itself. Ifo's expectations component jumped to 91.6 from 90.4, even as the current assessment slipped to 88.8 from 89.5. A firmer German outlook feeds directly into the argument for a December ECB hike, which 64 of the 73 economists polled by Reuters already expect. Yet EUR/USD's rise on Monday's release was less than a quarter the size of the fall that followed it, a sign that dollar demand ahead of the Fed is the stronger force right now.
That is the same dynamic covered in Why This Dollar Yield Surge Could Raise Your Bills and in Eurozone Inflation Spike Could Raise Your Borrowing Costs: when US yields climb faster than Eurozone data can justify, the euro under 1.12 story becomes less about Germany and more about what the Fed does next.
Why Some Traders Call This Just Noise
The other side of the argument is that this week changes very little on paper. A hold is expected in the Fed's statement at 18:00 GMT on Wednesday, and the ECB is expected to leave its deposit rate at 2.50% when it announces at 13:15 GMT on Thursday. If both central banks simply hold as expected, the real signal comes from the press conferences, Fed Chair Warsh takes questions at 18:30 GMT and ECB President Lagarde speaks at 17:00 GMT on Tuesday, not from the decisions themselves.
Monday's drop also only gave back about three-fifths of the bounce off the October 14 low just above 1.1100 to the October 16 high just above 1.1250, which keeps the pair inside its recent range rather than breaking new ground. US durable goods orders, due at 12:30 GMT on Tuesday and forecast up 0.6% after a 0.1% fall, is one data point among several this week, not a shift in the broader picture. Seen this way, a euro under 1.12 is positioning ahead of Wednesday and Thursday, not new information in itself.
Weighing the Two Sides
The trend leans toward this being more than noise. EUR/USD is below both its 50-day Exponential Moving Average, just above 1.1350, and its 200-day, just under 1.1500, and both averages have fallen in every session since mid-September. That is a longer pattern than one Ifo release or one durable goods print can explain, and it lines up with the euro weakness discussed in Oil Rally Weakens Euro: What It Means for Your Money.
Still, the scale of Monday's move was modest, a close just under a round number, not a sharp break. The honest reading sits between the two sides. The direction fits a genuine rate gap story, but the size of this particular move owes a lot to pre-Fed positioning that could unwind depending on what Chair Warsh says at 18:30 GMT.
What This Means for You
If you hold euros or do business priced in them, a euro under 1.12 makes anything bought in dollars, from imported goods to dollar-priced commodities, a little more expensive in euro terms. That is a small, gradual effect rather than a sudden shock, but it is worth watching if the pair keeps drifting toward the October 14 low above 1.1100.
If you are a saver, the gap between the Fed's 3.75% to 4.00% range and the ECB's 2.50% deposit rate means dollar-denominated savings and bonds continue to carry a higher headline rate than euro equivalents, and futures pricing near 80% for a December Fed hike suggests that gap is not closing soon. If you are a borrower with a loan tied to ECB policy, Thursday's decision matters less for this week, since a hold is expected, and more for December, when 64 of the 73 economists surveyed by Reuters expect the ECB to move. Either way, the dates to watch are Wednesday's Fed statement and Thursday's ECB announcement, not this week's daily price swings.
The Risks to This View
The Reuters poll is not unanimous, not every one of the 73 economists surveyed shares that December ECB hike view, and the 80% market-implied odds of a December Fed hike can shift quickly if Fed Chair Warsh's remarks at 18:30 GMT on Wednesday lean more cautious than expected. Tuesday's durable goods orders, forecast up 0.6% after a 0.1% fall, could also move the dollar before the Fed even speaks, and Lagarde's comments at 17:00 GMT on Tuesday or the ECB's bank lending survey at 09:00 GMT could shift the euro side of the story independently. A euro under 1.12 today does not lock in a euro under 1.12 by the end of the week.
For readers tracking related moves elsewhere, Best Time to Trade GBPUSD: Session Times, Data and Strategy covers how similar central bank timing affects a different major pair.
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This article is market analysis and commentary, not financial advice.
What the video covers
Euro/dollar just closed below 1.1200, the lowest since October 15. One camp sees a dollar shift, another calls it Fed noise. Germany's Ifo survey beat forecasts, rising to 90.2 against an expected 89.8 on Monday. Two sets of professionals are staring at the same numbers and landing on opposite conclusions. The case for taking this seriously starts with Ifo expectations jumping to 91.6 from 90.4.
EUR/USD's rise on that beat was less than a quarter the size of the drop that followed. The Fed's 3.75 to 4.00 percent range already beats the ECB's 2.50, with December hike odds near 80 percent. Is this a real dollar shift, or just Fed week positioning? The noise case has numbers too. A Fed hold is expected Wednesday at 18:00 GMT, and the ECB is expected to hold Thursday too.
Monday's drop only gave back three fifths of the bounce from 1.1100 to 1.1250. US durable goods orders are forecast up 0.6 percent Tuesday, just one input among several this week. Same Ifo number, same Fed meeting, yet traders are reading it as either trend or pure positioning. The trend leans toward this mattering more than it looks on any single day.
Most economists expect a December hike, but this week itself brings no rate change at all. The euro's bounce on Monday was tiny next to its drop, which still kept it range bound. EUR/USD sits below its 50 day average near 1.1350 and 200 day average near 1.1500. A wide rate gap sits behind this move, far bigger than one Tuesday data print.
Both averages have fallen every session since mid September, yet Monday's own move was modest. The post's own evidence leans toward the dollar's rate edge, not pure pre-Fed noise, for EUR/USD. Chair Warsh's tone Wednesday or a cautious Lagarde could unwind it fast. This is analysis, not a signal.
Transcript of "Euro Under 1.12: Why Analysts Are Split Before the Fed and ECB Decide".
Edge-Forex publishes general market analysis, not investment advice. Market data shown is indicative and may be delayed.
Written by
Vinit Makol
Lead Strategist and Market Analyst at Edge-Forex
Vinit Makol is a forex trader, strategist and market analyst with more than 20 years of experience in forex and financial markets.
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