Euro drops to 17-month low as US PCE inflation quickens and ECB leaves rates unchanged

• EUR/USD hits a new 17-month low at 1.1105 as the US Dollar gains ground.
• Persistent inflation risks accompany the European Central Bank’s decision to leave interest rates unchanged.
• A December Fed rate rise remains in focus as US growth stays strong and inflation picks up.

Persistent inflation and resilient US economic growth underpin the US Dollar (USD), leaving the Euro (EUR) under pressure on Thursday. EUR/USD has extended its losses to a new 17-month low of 1.1105, its lowest point since May 2025. At the time of writing, the pair is trading near 1.1120, a decline of 0.28% on the day.

Following its October monetary policy meeting, the European Central Bank (ECB) confirmed on Thursday that its key interest rates would stay unchanged, as expected. Rates on the main refinancing operations, marginal lending facility and deposit facility stand at 2.65%, 2.90% and 2.50%, respectively.

Higher energy prices could push inflation upwards while weighing on economic growth, the ECB warned. Underlying inflation nevertheless remains broadly steady, and wages have not yet responded significantly to the energy shock. Rather than committing to a fixed interest rate path, the central bank reaffirmed that its decisions would depend on incoming data.

Earlier Eurozone releases offered contrasting signals. At 0.09 in October, up from -0.05 in September, the European Commission’s Business Climate Indicator moved into positive territory for the first time in three years. Consumer Confidence, however, was steady at -17.9, and the Economic Sentiment Indicator fell to 96.9, missing expectations of 97.5.

President Christine Lagarde will leave her post in February 2027, the ECB Governing Council also announced, although it gave no details of her successor. Market attention now shifts to Lagarde’s press conference for additional guidance on monetary policy.

September’s Personal Consumption Expenditures (PCE) Price Index increased by 3.6% year on year, compared with 3.4% in August, according to the US Bureau of Economic Analysis (BEA). Inflation on a monthly basis was 0.5%, while annual growth in the Core PCE Price Index accelerated to 3.1% from 3% previously.

The releases come after the Federal Open Market Committee (FOMC) voted 10-2 on Wednesday to leave interest rates at 3.75%-4.00%. A 25-basis-point rise was favoured by two policymakers. Federal Reserve (Fed) Chair Kevin Warsh, meanwhile, reaffirmed his commitment to bringing back price stability.

US Gross Domestic Product (GDP) growth also lent support to the Greenback, reaching an annualised 3.4% in the third quarter against expectations of 3.2%. Further evidence of labour market resilience came from Initial Jobless Claims, which fell to 194K, below the forecast of 199K.

With inflation proving persistent and economic activity remaining firm, expectations of additional Fed tightening have strengthened. The CME FedWatch tool puts the probability of a December rate rise at 83%.

EUR/USD technical analysis points to continued downside pressure

Trading at 1.1130 on the four-hour chart, EUR/USD retains a bearish short-term outlook below both the 100-period simple moving average (SMA) at 1.1196 and the 200-period SMA at 1.1293. Additional pressure comes from the broader descending trend line around 1.1254. The Relative Strength Index (14) is edging towards the lower part of its mid-range, near 36, suggesting continued selling interest but not yet an extreme oversold reading.

The horizontal level near 1.1105 provides the first downside support, followed by a lower floor around 1.1050, where sellers may begin taking profits. Any recovery would initially encounter the 100-period SMA at 1.1196. Beyond that, the descending trend-line area near 1.1254 and the 200-period SMA at 1.1293 are likely to limit a more sustained rebound for as long as the bearish structure holds.

(The technical analysis of this story was written with the help of an AI tool. Know more.)