The EUR/USD exchange rate has fallen below the 1.16 mark this week following contrasting monetary policy announcements from the European Central Bank and the Federal Reserve. For businesses and individuals managing cross-border payments, understanding these currency market movements provides essential context when planning international money transfers.
The Euro weakened 0.30% against the US Dollar, trading at 1.1565, as forex markets digested the implications of both central banks' policy decisions. This EUR/USD movement demonstrates how central bank interest rate decisions directly influence foreign exchange rates and the cost of sending money internationally.
ECB Holds Interest Rates Steady
The European Central Bank maintained its current interest rate structure, keeping the Deposit Facility Rate at 2.00%, the Main Refinancing Rate at 2.15%, and the Marginal Lending Rate at 2.40%. This decision reflects the ECB's view that monetary policy is appropriately positioned given current Eurozone economic conditions.
ECB President Christine Lagarde described the policy stance as being "in a good place", citing reduced economic risks and resilience across the Euro area economy. The Eurozone expanded by 0.2% in the third quarter, demonstrating steady growth despite global headwinds.
Several factors contributed to the ECB's optimistic outlook, including easing Middle East tensions, improved Europe-US trade relations, and the US-China trade truce. These geopolitical developments have helped mitigate downside risks to Eurozone growth.
The ECB confirmed that inflation is tracking close to its 2% target and emphasised it remains flexible on future rate decisions. The central bank will publish economic projections through 2028 at its December meeting, which could influence further monetary policy adjustments if inflation trends below target levels.
Federal Reserve Delivers Hawkish Rate Cut
The Federal Reserve cut its benchmark interest rate by 25 basis points to a range of 3.75% to 4.00%, but the accompanying commentary surprised currency markets. Fed Chair Jerome Powell stated that a December rate cut is "not a foregone conclusion", signalling a potential pause in the easing cycle.
This hawkish messaging boosted US Dollar strength across forex markets. The Fed's decision was not unanimous, splitting 10 to 2, reflecting internal debate about the appropriate pace of monetary policy adjustment.
Powell highlighted the Fed's focus on labour market conditions, noting that state-level unemployment data suggests the jobs market remains resilient. Several FOMC members indicated that interest rates may be at or near neutral levels, suggesting current monetary policy is appropriately balanced.
Persistent inflation concerns continue to influence Fed policy, with price pressures remaining above the central bank's 2% target. This combination of rate cuts paired with cautious forward guidance created the hawkish tone that strengthened the Dollar against major currencies including the Euro.
US Dollar Strength Pressures EUR/USD
The US Dollar Index climbed 0.37% to 99.50 following the Fed announcement, reflecting broad-based Greenback strength. The divergence between ECB and Fed monetary policy trajectories has created downward pressure on the EUR/USD exchange rate.
Additional support for the US Dollar came from improving US-China trade relations. Agreements reached between President Trump and President Xi Jinping included China resuming soybean purchases, tariff reductions on Chinese goods from 57% to 47%, and fentanyl tariff cuts to 10%. These developments enhanced risk appetite for Dollar-denominated assets.
EUR/USD Technical Analysis
The EUR/USD pair has turned bearish after breaking below 1.16, with technical indicators suggesting further downside potential. Immediate support sits at 1.1550, followed by the October low of 1.1542. A break below this level could expose the 1.15 psychological level and potentially the August low of 1.1391.
For EUR/USD to regain bullish momentum, the pair would need to reclaim 1.16 and consolidate above 1.1650 before challenging the 1.17 threshold.
Implications for International Money Transfers
These currency market movements have direct implications for businesses and individuals managing international payments and foreign exchange transactions. Understanding exchange rate trends helps optimise the timing and execution of cross-border transfers.
US-based businesses importing from Europe benefit from Dollar strength, as their purchasing power increases when converting USD to EUR. European exporters to the US market face the opposite dynamic, with Euro weakness potentially impacting profit margins on Dollar-denominated sales.
For individuals managing international property transactions, expat salary transfers, or family remittances, EUR/USD fluctuations directly affect the amount received after currency conversion. Monitoring forex market trends and central bank policy helps inform decisions about when to execute international money transfers.
Outlook for EUR/USD Exchange Rates
The policy divergence between the ECB and Federal Reserve suggests continued EUR/USD volatility ahead. With the ECB potentially considering additional easing if inflation undershoots targets and the Fed adopting a more measured approach to rate cuts, the interest rate differential between the Eurozone and United States could widen further.
December central bank meetings will be critical for EUR/USD direction, providing updated economic projections and clarity on monetary policy paths into 2026. Market participants will closely watch inflation data, employment figures, and GDP growth estimates from both regions.
At X Rate Capital, we help businesses and individuals navigate foreign exchange markets with competitive rates and transparent pricing for international money transfers. Our team monitors currency markets continuously, ensuring you can send money globally with confidence regardless of market conditions.
Understanding the forces shaping exchange rates helps you make informed decisions about your cross-border payments and international transfer timing.
