EUR/USD weakened (depreciated) and traded around 1.1550 after experiencing three consecutive days of losses. This weakening was caused by a strengthening US Dollar (USD) driven by good news regarding the US government shutdown.
A. Hopes for an End to the Government Shutdown (Supporting the USD)
- Good News: The USD received support after reports that a group of centrist Democratic Senators agreed to support a deal that would reopen the US government and fund several departments for next year.
- Contents of the Deal: This agreement would ensure federal employees receive their paychecks and allow delayed federal fund transfers to resume.
B. Economic Concerns (Constraining the USD)
- Shutdown Impact: US Treasury Secretary Scott Bessent said that the impact of the US federal shutdown on the economy is worsening.
- Consumer Sentiment Falls: The US dollar weakened after the University of Michigan Consumer Sentiment Index fell sharply to 50.3 in November (the lowest since June 2022), reflecting concerns about the government shutdown.
- Inflation Outlook: Bessent expects prices to decline over the coming months.
2. Factors Supporting the Euro (EUR)
The EUR/USD pair has the potential to regain its footing as the Euro (EUR) could receive support from the divergence in monetary policy outlooks between the ECB and the Fed:
- ECB Hawkishness: Market expectations for an interest rate cut by the European Central Bank (ECB) have declined sharply (only a 45% chance of a cut by September 2026, down from 80% in October).
- ECB Official Comments: ECB officials have urged caution regarding inflation. Vice President Luis de Guindos even warned that any decline in inflation below 2% is likely to be temporary.
Outlook Conclusion:
Although the USD strengthened on news of the shutdown resolution, EUR/USD could find support due to the ECB's relatively more hawkish stance compared to market expectations regarding the Fed, which tends to support the Euro.
A. Hopes for an End to the Government Shutdown (Supporting the USD)
- Good News: The USD received support after reports that a group of centrist Democratic Senators agreed to support a deal that would reopen the US government and fund several departments for next year.
- Contents of the Deal: This agreement would ensure federal employees receive their paychecks and allow delayed federal fund transfers to resume.
B. Economic Concerns (Constraining the USD)
- Shutdown Impact: US Treasury Secretary Scott Bessent said that the impact of the US federal shutdown on the economy is worsening.
- Consumer Sentiment Falls: The US dollar weakened after the University of Michigan Consumer Sentiment Index fell sharply to 50.3 in November (the lowest since June 2022), reflecting concerns about the government shutdown.
- Inflation Outlook: Bessent expects prices to decline over the coming months.
2. Factors Supporting the Euro (EUR)
The EUR/USD pair has the potential to regain its footing as the Euro (EUR) could receive support from the divergence in monetary policy outlooks between the ECB and the Fed:
- ECB Hawkishness: Market expectations for an interest rate cut by the European Central Bank (ECB) have declined sharply (only a 45% chance of a cut by September 2026, down from 80% in October).
- ECB Official Comments: ECB officials have urged caution regarding inflation. Vice President Luis de Guindos even warned that any decline in inflation below 2% is likely to be temporary.
Outlook Conclusion:
Although the USD strengthened on news of the shutdown resolution, EUR/USD could find support due to the ECB's relatively more hawkish stance compared to market expectations regarding the Fed, which tends to support the Euro.
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