The EUR/USD pair is showing modest gains near 1.1060 during early European trading on Friday, but its upside potential remains limited due to the European Central Bank's cautious stance. ECB policymaker Philip Lane emphasized that while energy prices may be falling, the bank's interest rate decisions will depend on how much the recent surge in fuel costs impacts wages and other prices. Economists polled by Reuters expect the ECB to deliver a final deposit rate hike this cycle next month, though over a third anticipate another increase in early 2027 as inflation remains double the 2% target.
Across the Atlantic, Federal Reserve officials have warned that US inflation remains stubbornly high, with some signaling openness to a 50-basis-point rate hike if price pressures persist. The CME FedWatch tool indicates traders are now pricing in nearly a 14.5% probability of such a large hike at the Fed's December policy meeting, up from 0% last week. Analysts at NBC note that the Euro is caught between elevated inflation and uneven growth, limiting its strength despite recent data. They predict EUR/USD could drop to 0.65 by year-end before gradually recovering above 0.70 in 2025.
Fed’s John Williams delivered a moderately hawkish message, highlighting a resilient US economy and persistent inflation. His speech underscored the need for further tightening to restore inflation to 2%, while cautioning that aggressive deflationary measures could harm the economy. The FXS Fed Sentiment Index remains firmly in hawkish territory, reinforcing the Dollar's support. Technical analysis shows EUR/USD maintaining a bearish near-term bias, with key support at 1.1000 and immediate resistance at 1.1100.