Euro extends gains to one-week high on ECB rate outlook

The euro rose in European trading on Tuesday against a basket of global currencies, extending its gains for a second consecutive day against the US dollar and hitting a one-week high, supported by continued selling of the US currency in the foreign exchange market ahead of the Christmas holidays.

The single currency was also supported by declining expectations that the European Central Bank will cut interest rates in February 2026, particularly amid recent improvements in economic activity across the euro area, alongside expectations that this improvement will continue as downside risks ease.

Price overview

Euro exchange rate today: the euro rose 0.2% against the dollar to $1.1780, its highest level in a week, from an opening level of $1.1759, after touching an intraday low of $1.1753.

The euro ended Monday’s session up 0.45% against the dollar, marking its first gain in five days, amid active selling of the US currency.

US dollar

The dollar index fell 0.2% on Tuesday, deepening losses for a second straight session and hitting a one-week low, reflecting continued weakness in the US currency against a basket of major and minor currencies.

The decline comes amid increased dollar selling ahead of the Christmas and New Year holidays, and under pressure from cautious comments by some Federal Reserve officials, which highlighted growing concern over weakness in US labor market indicators.

European interest rates

In line with expectations, the European Central Bank kept its key interest rates unchanged last week at 2.15%, the lowest level since October 2022, marking the fourth consecutive meeting with no change.

The ECB reaffirmed its data-dependent, meeting-by-meeting approach, without committing to a specific interest rate path, noting that current rates are appropriate given stable inflation and economic growth.

ECB President Christine Lagarde said the bank remains in a “good position” and stressed that there is consensus within the Governing Council to keep all options open, including the possibility of raising rates if necessary.

Money market pricing for a 25-basis-point interest rate cut by the ECB in February 2026 currently remains below 10%.

To reprice these expectations, investors are awaiting further euro area economic data on inflation, unemployment, and wage growth.