Euro edges up versus dollar after ECB holds rates

The euro edged higher against the dollar on Thursday, October 29, after the European Central Bank kept interest rates unchanged. The dollar eased against most major currencies after data showed rising US inflation, according to Reuters.

The ECB's decision was well telegraphed. The bank warned that inflation risks were rising because of surging energy costs. According to FXStreet, the ECB kept its deposit rate at 2.50% after two hikes since the Iran war pushed energy prices higher. FXStreet also reported that ECB President Christine Lagarde said a third hike was discussed before the unanimous decision to hold. She said another hike in December remains likely.

The euro touched its lowest level against the dollar since May during the session. It then recovered and was last up about 0.11% to 0.13% on the day, at around $1.1163 to $1.1167, depending on the time of the report. Against the pound the euro weakened about 0.2%, to around 0.834 to 0.835 per euro. Pound Sterling Live noted that EUR/USD rose from a fresh 2026 low just above 1.11. It linked the rebound to a broad retreat in the dollar after the ECB decision, rather than to any lift from the ECB itself.

Marchel Alexandrovich, European economist at Saltmarsh Economics, said the ECB left rates unchanged as expected but signalled that a December hike is firmly in play, citing upside risks to the inflation outlook. ING's Carsten Brzeski made a similar point, saying another hike in December is clearly in the offing. Convera's George Vessey said the key point for currency markets is that the ECB no longer needs to do all the tightening itself, because bond markets have already tightened financial conditions.

The ECB also announced that Lagarde will step down on February 7, ahead of the end of her term in October 2027. Alexandrovich said markets will not be surprised by the announcement. He added that it highlights an expected reshuffle at the ECB in the first half of 2027, with Isabel Schnabel, Lagarde and Philip Lane all set to depart.

On the US side, Commerce Department data showed that inflation accelerated in September as consumers paid more for gasoline and other goods. The US economy also grew faster than expected in the third quarter, helped by resilient consumer spending and AI-driven business investment. Economists had expected the Federal Reserve to raise rates in December, and the data supported that view. Markets were pricing in a nearly 80% chance of a Fed hike in December, according to the CME's FedWatch tool.

The dollar index, which measures the greenback against a basket of currencies including the euro and the yen, fell 0.08% to 102.02. The dollar also weakened about 0.13% to 0.27% against the Swiss franc, to around 0.826 to 0.827, depending on the report. Eugene Epstein of Moneycorp North America said the dollar had not reacted strongly to the latest events. He said much of the news had been expected and was already priced in.

The Fed had held interest rates on Wednesday. Fed Chair Kevin Warsh said inflation can be lowered to the 2% target without having to slow growth or raise unemployment. That pushed traders to rein in bets on rate hikes in 2027. Warsh also said the Fed would set aside one of its eight regular policy meetings next year, and two in 2028, to discuss major issues facing the institution. Those meetings would not be used to consider changes in monetary policy.

Attention was also turning to the Bank of Japan, which concludes a two-day meeting on Friday and is expected to keep rates steady. This article is a news summary and is not investment advice. It does not suggest that any market move will continue.

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