On Wednesday during the U.S. session, EUR/USD traded mildly higher as the U.S. dollar pauses its advance ahead of Wednesday's Federal Reserve policy decision. At the time of writing, the pair had risen toward the 1.1150 area.
The Dollar Index (DXY), which measures the U.S. currency against a basket of six major peers, stands at 102.20 after hitting a two-week high of 102.49 earlier. The market broadly expects the Fed to leave the policy rate in the 3.75%–4.00% range after the 25-bp increase in September.
The key question for investors is whether the Fed will keep alive expectations of another hike in December as it seeks to bring inflation back to the 2% target. Inflation risks remain elevated due to ongoing geopolitical tensions in the Middle East. Oil prices are bouncing after a two-day drop following the Wall Street Journal report that the U.S. warned Persian-Gulf states about a possible military operation against Iran after the midterms.
According to the CME FedWatch tool, the market prices in roughly an 85% chance of a December rate hike. If the FOMC signal points to readiness to continue tightening, the dollar could accelerate again and put pressure on the euro. Conversely, a softer tone could prompt some trimming of dollar longs and let the pair recover somewhat.
ING analysts note that EUR/USD "remains at yearly lows" as a broad dollar rally and an unresolved French budget crisis dominate. SocGen strategists highlight the euro's lack of a meaningful bounce, with rising energy costs, public-finance concerns, and social instability weighing on the single currency.
If FOMC rhetoric keeps December-hike expectations alive, the dollar will likely keep strengthening. Unless the European Central Bank takes an overtly hawkish stance, the euro's fundamental backdrop will likely continue to limit it and leave it vulnerable to further dollar gains.
On Thursday, attention will turn to the ECB decision. The bank is expected to hold the deposit rate at 2.50% after a total 50-bp tightening this year. Investors will look for clues about the ECB's December plans and how the Bank balances persistent energy-driven inflation against risks of slowing growth.
Technically, the pair remains under pressure, trading below all major moving averages. Immediate resistance is at 1.1150, with the 9-day EMA around 1.1180 offering further resistance above that. Support is the year-to-date low near 1.1113.
The table below shows the euro's percentage change versus major currencies on Wednesday. The euro is strongest against the New Zealand dollar.