EUR/USD Outlook: Euro Shines on De-Dollarisation Trend and ECB Hawkishness

Euro Boosted by De-Dollarisation and ECB Hawkish Stance

The Euro (EUR) continues its strong run this week, rising to the upper boundary of a well-defined trading range between 1.1550 and 1.1600 against the US Dollar (USD). The currency is being driven by both fundamental and thematic factors, making it one of the top performers in the FX market.

Key Drivers Behind Euro Strength

1. Hawkish ECB Commentary
   The European Central Bank (ECB) has delivered a more hawkish tone recently, tempering expectations of immediate rate cuts. Though markets do price in a potential December rate cut, updated inflation and wage tracker data suggest the ECB could still move cautiously.
2. De-Dollarisation Momentum
   The ongoing de-dollarisation narrative—where economies diversify away from USD dependency—has significantly boosted the Euro's appeal as a global reserve currency.
3. Weakness in Trading Partner Currencies
   Declines in currencies such as the British Pound (GBP) and Japanese Yen (JPY) have further supported the Euro’s strength.

Market View: EUR/USD Above Fair Value?

Analysts argue that EUR/USD is trading higher than justified by short-term interest rate differentials. However, this does not negate the prevailing bullish trend, which remains intact unless the USD stages a dramatic reversal or policy shifts occur in the US.

“We do see the 1.1550–1.1600 area as the top of a trading range – unless a dramatic shift in rate differentials favors the Euro,” one strategist noted.

Spotlight: Advancing the Euro’s Global Role

On Thursday, the European conference on financial integration, titled “Advancing the Savings and Investments Union”, is drawing attention. Though typically not a major market mover, this event may gain increased relevance as policymakers push forward the ‘global Euro’ agenda.

The incomplete Capital Markets Union remains a structural barrier. Any breakthroughs or commitments from this conference could have long-term implications for the Euro’s international usage and stability.

Related Tredu Reads:

• ECB Rate Cut Odds: What’s Priced In Now?
• What De-Dollarisation Means for Forex Markets
• Euro's Global Role: Hype or Reality?