Euro shines and muscles up to three-month high

The euro rose in European trading on Wednesday against a basket of global currencies, extending its gains for a third consecutive session against the US dollar and hitting a three-month high. The move was supported by continued selling of the US currency in the foreign exchange market ahead of the Christmas holiday period.

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

Price Overview

• Euro exchange rate today: The euro rose about 0.15% against the dollar to $1.1808, its highest level since September 25, from an opening level of $1.1794, after touching an intraday low of $1.1786.

• The euro ended Tuesday’s session up 0.3% against the dollar, marking a second consecutive daily gain, amid hopes that the European Central Bank will keep interest rates unchanged for as long as possible in 2026.

The US dollar

The US dollar index fell 0.1% on Wednesday, extending its losses for a third straight session and hitting a two-and-a-half-month low, reflecting continued weakness in the US currency against a basket of major and secondary currencies.

These losses come amid active selling of the dollar ahead of the Christmas and New Year holidays, and under pressure from cautious comments by some Federal Reserve officials, which highlighted growing concerns about weakness in the US labor market.

Eric Bregar, head of FX and precious metals risk management at Silver Gold Bull in Toronto, said that the US dollar could weaken next year, at least in the first quarter, as the Federal Reserve will increasingly be forced to acknowledge that the labor market is not in good shape.

Bregar added that the Fed may be compelled to make greater concessions on interest rate cuts than it has so far, noting that markets want lower rates and that expectations are building for a new, more dovish Federal Reserve chair who would seek to deliver that outcome.

European interest rates

• Money market pricing for a 25-basis-point rate cut by the European Central Bank in February 2026 remains below 10%.

• To prompt a repricing of these expectations, investors are awaiting further economic data from the euro area, including inflation, unemployment, and wage figures.

Interest rate differential

Following the Federal Reserve’s latest decision, the interest rate gap between Europe and the United States narrowed to 160 basis points in favor of US rates, the smallest differential since May 2022, which supports further gains in the euro against the US dollar.