Euro climbs close to 1.1250 as attention turns to US midterm elections

EUR/USD strengthens towards 1.1240 as Wednesday’s early Asian trading gets under way.
Wednesday’s focus will be on the US midterm elections.
A December rate hike is probable, according to the ECB’s Nagel.

Selling pressure on the US Dollar (USD) amid uncertainty over the US midterm elections helps the Euro (EUR), taking EUR/USD modestly higher towards 1.1240 in Wednesday’s early Asian session. Market participants will track the election outcome closely before US September employment figures are released later this week.

Control of Congress remains undecided as Americans cast their ballots in midterm elections that will pass judgement on US President Donald Trump's second term. Several crucial races have yet to be settled.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Media projections have called roughly two dozen of the US House’s 435 seats, with none of those results coming from races that had been expected to be competitive. US media projections also show Democrats taking the first seven of the 35 US Senate seats contested on Tuesday, including US Senator Jon Ossoff’s victory in Georgia. Despite these early wins, the party still needs a net gain of four seats to secure control of the Senate.

The Euro also draws support from hawkish remarks by European Central Bank (ECB) policymakers. Speaking on Tuesday, ECB Governing Council member Joachim Nagel indicated that a deteriorating inflation outlook would probably require the central bank to raise borrowing costs next month.

Following two increases since the Iran war began, the ECB left its key interest rates unchanged last week. A number of officials have signalled that further increases could be needed. While economists anticipate the last rate move next month, market pricing points to tightening extending into 2027.

Why is the Euro edging lower despite the ECB’s December hike signals?

In quiet trading conditions, the Euro is marginally weaker against the Dollar, Scotiabank analysts observe, against a backdrop of continued hawkish communication from the ECB. They draw attention to ECB Governing Council member Radev’s remarks that the October pause "does not mean that tightening is over," thus "keeping the door open for a December hike." The bank notes that "Dec OIS are pricing in 22bps of tightening risk," signalling that markets continue to attach a meaningful probability to further policy tightening.

Turning to commodities, Scotiabank notes that "despite the drop in crude oil prices this week, the European energy focus remains on natgas/power where prices have eased but remain significantly above even the most pessimistic ECB forecasts." Although headline energy markets look more settled, persistently high gas and electricity costs remain an influence on the Eurozone’s inflation outlook.

On fiscal policy, Scotiabank highlights that "France reported its September YTD budget balance of EUR159.2bn, in line with expectations," indicating that the figures from one of the Eurozone’s major sovereign borrowers contained no significant surprise.

Could Nagel’s likely December hike signal lift the Euro?

Expectations of tighter monetary policy have been reinforced by an unusually hawkish message from the ECB’s Nagel. His FXS Speechtracker reading of 8.2/10 is well above the historical average of 7/10. By explicitly stating that “a rate hike in December is very likely to be necessary” and cautioning that inflation pressures are nearing an adverse scenario, Nagel signals a firm preference for additional tightening. Interest-rate differentials therefore offer support to the Euro.

Price stability remains central to Nagel’s message: he stresses the need to stop an energy price surge from spreading into broad-based inflation, while maintaining that France’s budget problems are not for monetary policy to resolve. Together, his vigilance on inflation and confidence in fiscal containment point to little tolerance for upside inflation surprises. This raises the likelihood of further rate increases and supports the Euro’s near-term resilience against the Dollar and other major currencies.

Technical Analysis: Can EUR/USD Shake Off Its Bearish Bias Below the 100-Day SMA?

A near-term bearish bias persists on the EUR/USD daily chart while the pair remains below the 100-day Simple Moving Average (SMA). Trading just above the middle line of the 20-day Bollinger Bands points to underlying demand, though that support is fragile. Immediate resistance comes from the upper band at 1.1254. With the Relative Strength Index (RSI) at 46, below the 50 threshold, recovery efforts appear to lack convincing momentum.

Any upward move first faces the upper Bollinger band around 1.1255, followed by the more significant 100-day SMA barrier near 1.1420. Sellers are likely to defend the broader downtrend at that level. Initial support sits at the middle Bollinger band of 1.1195, with the lower band near 1.1135 providing the next cushion. A daily close beneath the latter would strengthen the bearish pattern and leave room for additional declines.

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

Euro: Frequently Asked Questions

Which countries use the Euro, and how widely is it traded?

Used by the 20 European Union countries within the Eurozone, the Euro ranks second only to the US Dollar among the world’s most actively traded currencies. Its share of all foreign exchange transactions stood at 31% in 2022, with average daily turnover exceeding $2.2 trillion. An estimated 30% of all transactions involve EUR/USD, making it the world’s most traded currency pair. Next come EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

What role does the ECB play in the Euro’s performance?

Based in Frankfurt, Germany, the European Central Bank (ECB) serves as the Eurozone’s reserve bank, managing monetary policy and setting interest rates. Maintaining price stability is its principal mandate, whether through curbing inflation or supporting growth. To do so, it mainly raises or lowers interest rates. Higher relative rates, or expectations that rates will rise, generally support the Euro; the reverse also applies. Monetary policy is decided by the ECB Governing Council at eight meetings each year. The decision-makers comprise the heads of the Eurozone’s national banks alongside six permanent members, among them ECB President Christine Lagarde.

Why do inflation figures matter for the Euro?

For the Euro, a key economic measure is Eurozone inflation, tracked through the Harmonised Index of Consumer Prices (HICP). An inflation reading above expectations, particularly one exceeding the ECB’s 2% target, requires the central bank to increase interest rates to bring price growth under control. When the region’s interest rates are higher than those of its counterparts, the Euro usually benefits. Those returns make the Eurozone a more appealing destination for global investors’ funds.

Why does the Euro respond to economic releases?

The Euro can react to economic releases because they reveal the economy’s health. GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys are among the indicators that can determine the single currency’s direction. Economic strength supports the Euro by drawing in foreign investment and potentially prompting the ECB to raise interest rates, which directly strengthens the currency. Weak data, by contrast, is likely to weigh on the Euro. Particular attention is paid to figures from Germany, France, Italy and Spain. These four largest euro-area economies together represent 75% of the Eurozone’s economy.

Why is the Trade Balance important for the Euro?

The Trade Balance is another release that matters for the Euro. Over a specified period, it compares a country’s export earnings with its expenditure on imports. Strong overseas demand for a country’s exports generates additional demand for its currency as foreign buyers seek to purchase those goods, lifting its value. A positive net Trade Balance therefore supports a currency, while a negative balance has the opposite effect.