Euro falls below 1.1500 as traders await Fed and ECB decisions

Wednesday 18 - 08:20

By: Dakir Madiha

Euro falls below 1.1500 as traders await Fed and ECB decisions

The euro weakened against the US dollar, slipping below the 1.1500 level on Tuesday as markets positioned ahead of key policy decisions from the Federal Reserve and the European Central Bank. The EUR/USD pair closed near 1.1491 after opening at 1.1505, marking its lowest level in seven months.

The Federal Reserve began its two day policy meeting on Tuesday, with an interest rate decision expected on Wednesday, followed by the ECB on Thursday. Markets see a 99.2 percent probability that the Fed will keep rates unchanged in the 3.50 percent to 3.75 percent range, while the ECB is also expected to maintain its deposit rate at 2 percent. Investors are focused on forward guidance, including the Fed’s updated Summary of Economic Projections and its dot plot, which may signal the timing of future rate cuts.

Rising oil prices linked to the conflict between the United States and Iran have disrupted expectations for monetary policy. Shipping disruptions in the Strait of Hormuz, a key route for about one fifth of global oil trade, have pushed Brent crude above 100 dollars per barrel for the first time since 2022. Prices have surged more than 40 percent since the conflict began, with further gains following recent attacks on energy infrastructure in the United Arab Emirates.

The energy shock has led markets to scale back expectations for rate cuts in the United States. Traders now price in only one rate cut in 2026, compared with at least two before the conflict, and expect the first reduction to be delayed from July to September. Economists at Morgan Stanley said the Fed is likely to look through temporary energy price shocks, though risks now point to later policy easing.

For the ECB, the surge in oil prices presents a more complex challenge. Europe’s reliance on imported energy means higher crude prices could slow economic growth while increasing inflation, complicating policy decisions. Analysts at ING said a rate cut is unlikely at the ECB’s March meeting, with markets now considering the possibility of a rate increase by July, reversing earlier expectations of stable policy through the year.

The US dollar index rose to 99.91 on Tuesday, up 0.20 percent on the day and more than 2 percent over the past month, supported by demand for safe haven assets. The euro has declined from levels above 1.2050 reached in late January, falling more than five cents in under two months.

While both central banks are expected to hold rates this week, market attention remains on future guidance. US officials said the conflict with Iran is likely to last weeks rather than months, adding further uncertainty to the outlook for inflation and monetary policy.