EUR/USD: Numerous catalysts with antagonistic effects

Facing headwinds, the euro was stable against the dollar today amid a busy news cycle, in the final stretch before the last FOMC meeting of the year on 10 December. Currency traders will have to contend with key indicators between now and then, notably PCE prices, the Fed's preferred measure of inflation.

Barring any surprises, the FOMC meeting is expected to result in a 25 basis point cut in the dollar's return. However, traders remain uncertain about the path of interest rates for 2026.

"But another crucial event is also on the horizon: Donald Trump is expected to announce Jerome Powell's successor before Christmas," notes Romane Ballin, bond manager at Auris Gestion.

"The president indicated on Sunday that he had made his choice. According to several sources, Kevin Hassett, director of the National Economic Council and a close advisor to Donald Trump, is the frontrunner. Other finalists include governors Christopher Waller and Michelle Bowman, former governor Kevin Warsh, and Rick Rieder of BlackRock. Regardless of the chosen candidate, the tone of the next Fed chairmanship could prove significantly more accommodative. Donald Trump has been explicit: he expects the next Fed chairman to quickly implement interest rate cuts."

Adding to the question of the profile of the future Fed chairman is a doubt, even a fear: that of a possible schism within the Fed.

"Investors are now trying to discern which trend is prevailing within the Federal Reserve. What is certain is that it finds itself in a delicate situation, with its officials publicly disagreeing on whether to prioritize controlling inflation or stimulating employment. Until now, some central bank leaders had been sending a chilly message, mentioning the 'necessary caution' and a possible maintenance of interest rates, dragging markets down. However, more recent statements indicate the opposite, this time triggering a bullish effect on Wall Street," analyses Greg Kounowski, Investment Advisor at Norman K.

"With a record-breaking shutdown, the employment report and the October CPI will not be released in their entirety. However, we should keep a close eye on the latest data to be released before the Fed meeting on 9-10 December: the weekly jobless claims (4 December), and the PCE index, which is closely watched by the Fed." "For its long-term inflation target and the University of Michigan's consumer confidence index (5 December)," adds the asset management executive.

In the EU, the confirmation of sluggish industrial PMIs, particularly in France, complicates the ECB's task.

"Even if we can be more optimistic about the future, the difficulties in European industry should be a source of concern for the ECB in formulating its monetary policy," agrees Xavier Chapard, strategist at LBPAM.

"This is one of the considerations we continue to emphasize in our view of the ECB taking further easing action in the coming months. However, in the short term, price developments are likely to show stable inflation rather than a continued convergence towards 2%, as preliminary figures for several countries indicate and as the Eurozone price index, due to be published today, is expected to show. Nevertheless, these are generally base effects, and the trend towards disinflation is expected to continue in 2026. Inflation is projected to fall below 2% in 2026 and remain at that level in 2027."

No surprises this morning regarding consumer prices, excluding food, energy, alcohol, and tobacco (volatile items), which rose by 2.3% year-on-year in November, according to the initial estimate for the Eurozone. In the broadest calculation base, however, inflation rose slightly (+2.2% compared to +2.1% in October).

Lastly, the Euro, one of the most reliable barometers of risk appetite in financial markets, showed nervousness as it approached a downward-sloping trendline, while currency traders' eyes turned to Tokyo and a possible tightening of monetary policy by the Bank of Japan following signals sent in that direction by its governor.

"Kazuo Ueda's statements not only pushed Japanese rates higher, but they were felt across all sovereign bond markets worldwide, with long-term US and EU rates rising sharply," analyse strategists at LBPAM.