Euro Dips to Fresh Low Amid Political and Economic Uncertainty

The Euro faced renewed pressure this week, hitting a fresh low before bouncing back slightly. European Central Bank (ECB) Chief Economist Philip Lane suggested that higher energy costs and borrowing rates are already cooling demand, which may limit the need for further aggressive rate hikes. Meanwhile, Bundesbank President Nagel noted that there are no clear signs of inflation feeding into wages and price-setting, despite Euro area inflation reaching 3.8% in September, its highest since September 2023.

The ECB's deposit rate stands at 2.50% after recent increases, with markets anticipating two to three more hikes over the coming year. However, fewer hikes could weaken the Euro against the US Dollar. Political risks in Spain and France are adding to the uncertainty, as Spain called a snap vote. Lane's comments came on the same day Euro area producer prices were reported 8.2% higher than a year earlier.

Key economic data releases this week include Euro area retail sales for August, expected to rise 0.2% month-over-month after a 0.6% fall in July. The ECB will also publish the account of its September 10 meeting on Thursday, following Lane's speech earlier that day. Additionally, the minutes of the Federal Reserve's September meeting will be released on Wednesday, which could influence EUR/USD if they signal more US rate hikes.

From a technical perspective, EUR/USD remains under pressure below 1.1300, with support levels at 1.1150 and 1.1100. A daily close above 1.1350 would shift the bias higher.