The US dollar deepens its losses after a cautious Federal Reserve meeting.

Christine Lagarde points to an upward revision of economic forecasts in Europe

The likelihood of a European interest rate cut in December is slim.

The euro rose in the European market on Thursday against a basket of global currencies, extending its gains for the second consecutive day against the US dollar and recording its highest level in two months, amid strong demand for the single currency as one of the best investment opportunities available in the foreign exchange market, especially after the narrowing of the interest rate gap between Europe and the United States.

The US dollar deepened its losses following the release of the Federal Reserve meeting results, which were less hawkish than markets had expected, encouraging investors to increase their bets on two more US interest rate cuts in 2026.

European Central Bank President Christine Lagarde praised the recent improvement in economic activity in the Eurozone and hinted at the possibility of raising economic growth forecasts during the monetary policy meeting scheduled for next week.

Price overview

Euro exchange rate today: The euro rose against the dollar by 0.1% to ($1.1707), its highest level since October 17, from today's opening price of ($1.1695), and recorded a low of ($1.1690).

The euro ended Wednesday's trading session up 0.6% against the dollar, its first gain in the last five days and its biggest daily gain since September 16, thanks to the US Federal Reserve meeting.

US dollar

The dollar index fell 0.1% on Thursday, deepening its losses for the second consecutive session and hitting a two-month low of 98.54 points, reflecting the continued decline in the US currency against a basket of global currencies.

The Federal Reserve cut interest rates by 25 basis points on Wednesday at the conclusion of its final meeting of the year, as expected, to a range of 3.75%, the lowest level since September 2022, in the third consecutive cut in US interest rates.

However, Federal Reserve Chairman Jerome Powell's remarks at the press conference were less hawkish than investors had expected, surprising markets that had been anticipating a more aggressive tone.

The results of this meeting reinforced market expectations of two further cuts to US interest rates next year, compared to the Federal Reserve's average forecast of one quarter-point cut.

Nick Rees, head of macroeconomic research at Monex Europe, said: For us, the most important takeaway was the bias towards monetary easing in the monetary policy statement updates and in the press conference of Federal Reserve Chairman Powell.

Christine Lagarde

European Central Bank President Christine Lagarde said on Wednesday that the eurozone economy is showing a clear degree of resilience in the face of trade tensions, and that the pace of growth is now approaching its potential level, which could prompt the ECB to raise its growth forecasts during its monetary policy meeting scheduled for next week.

Lagarde added, during an event organized by the Financial Times: “In our last round of economic forecasts, we raised our estimates, and I think we may do so again in December.” Lagarde pointed to improved confidence indicators, particularly in the business and manufacturing sectors, and to employment data that reflects continued economic resilience.

Lagarde reiterated that monetary policy is in a good place, which investors interpret as a signal that no adjustment to interest rates is needed.

European interest rate

The money market's pricing in the likelihood of the European Central Bank cutting European interest rates by about 25 basis points in December is currently stable below 10%.

Sources told Reuters that the European Central Bank is likely to keep interest rates unchanged at its meeting this December.

Interest rate gap

Following the Federal Reserve's decision, the interest rate gap between Europe and the United States narrowed to 160 basis points in favor of the US interest rate, the lowest gap since May 2022, which is in favor of a higher exchange rate for the euro against the US dollar.