Euro Rebounds, Upside Remains in Check
EUR/USD strengthened and hovered around 1.1830 in early European trading on Wednesday, as market participants began to position themselves ahead of the release of eurozone inflation figures. Today's main focus is the flash estimate of the HICP (harmonized version of inflation), which often triggers volatility in the euro within minutes.
Although the euro strengthened, its upside potential is considered limited as the US dollar benefited from easing fiscal uncertainty following the official end of the partial US government shutdown. The funding bill narrowly passed the House of Representatives (217–214) and was signed, allowing government operations to resume.
Furthermore, the market is still digesting the shift in Federal Reserve policy expectations following Donald Trump's selection of Kevin Warsh as the next Fed chair. This narrative tends to support the dollar as investors perceive a more "tight"/pro-dollar policy stance (or at least increasing uncertainty, leading to a greater demand for the USD).
From the European perspective, the next focus is on the European Central Bank meeting on Thursday. A strong consensus expects the ECB to hold interest rates (deposit rate around 2%) for the fifth consecutive meeting, so the tone of Christine Lagarde's press conference is usually the most decisive factor: sounding hawkish = the euro has a chance to strengthen, sounding cautious/dovish = the euro could lose steam.
Meanwhile, comments by Swedbank economist Nerijus Maciulis highlighted that early 2026 suggests the trade deal is still "fragile" and risks remain high—this provides the context for why the market is sensitive to inflation data and central bank signals. The bottom line: Today's HICP could be the catalyst for a quick move, but USD factors (the shutdown ending + the Fed issue) could prevent EUR/USD from rising too far. (asd)
Source: Newsmaker.id
