Euro holds above $1.16 as quiet U.S. holiday leaves markets without fresh impetus

The euro held above $1.16 on Monday as a U.S. market holiday left foreign-exchange trading without a major new catalyst.

The single currency traded at $1.1628 at about 1500 GMT, compared with $1.1620 late in the previous European session. The European Central Bank set a reference rate of $1.1622. Trading stayed within a range of $1.1607 to $1.1635.

Recent eurozone data offered support. The bloc’s economy grew 0.6% in the second quarter from the previous quarter and 1.2% year on year, according to a third estimate from Eurostat. Financial experts’ confidence also rose for a fifth consecutive month in September, increasing 4.2 points to 5.1, its highest level since February 2022, according to Sentix.

Markets will focus on the ECB’s meeting in Berlin this week and the Federal Reserve’s meeting next week. Analysts and markets broadly expect the ECB to increase the deposit rate for banks by 25 basis points, to 2.50%. The stronger growth figures give the central bank more room to concentrate on inflation, while Natixis CIB said second-round effects remained moderate because wage growth was slowing and labor-market conditions were weakening.

The euro has gained about 2% against the dollar since July, helping contain inflationary pressure. ING analyst Chris Turner said the far-right AfD’s strong result in Sunday’s Saxony-Anhalt election was not a major negative factor for the euro. He said, however, that the result showed declining support for Chancellor Friedrich Merz’s CDU and could increase tensions within the governing coalition if similar results emerge in two other regional elections.

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The second-round effects remain moderate, thanks to slowing wage growth and weakening labor-market conditions.