Euro stable ahead of ECB decision; investors adjust Fed view
TLT•The euro was steady near $1.1148 ahead of an expected ECB rate hold, while the dollar steadied after Fed Chair Kevin Warsh’s remarks led traders to reduce bets on rate hikes in 2027. The euro is down 2% against the dollar this month, and investors hold a decade-high net short position worth $18.89 billion.
1. Euro positioning and ECB focus
The euro held near $1.1148 ahead of the ECB’s policy decision, with attention on the inflation outlook and turmoil in French bond markets. Investors’ net short position in the euro stood at $18.89 billion, its largest in a decade, while markets priced an 82% chance of a rate hike in December.
2. Fed outlook shifts
The Fed left rates unchanged and described the economy as growing at a “strong pace.” Warsh said inflation could return to the 2% target without slowing growth or raising unemployment, prompting traders to rein in bets on rate hikes in 2027. The U.S. two-year Treasury yield fell 4 basis points to 4.695%.
3. Other central banks in focus
The Bank of Japan was expected to keep rates steady at the end of its meeting on Friday. The yen weakened slightly, with the dollar up 0.1% at 158 yen. The New Zealand dollar fell 0.18% to $0.5615 after the Reserve Bank of New Zealand unexpectedly held its rate at 2.75%.
