The euro rose in European trading on Wednesday against a basket of global currencies, extending its gains for the second consecutive day against the US dollar, as part of its recovery from two-month lows, supported by weakness in the American currency following comments by Federal Reserve Chairman Jerome Powell.

The rise was also supported by positive political developments in France, where newly appointed Prime Minister Sbastien Lecornu suspended the 2023 pension reform until after the presidential elections scheduled for 2027, in a move aimed at easing political and social tensions in the eurozones second-largest economy.

Price Overview

The EUR/USD exchange rate rose by 0.2% to 1.1626 from an opening level of 1.1606, after hitting a low of 1.1601.

The euro ended Tuesdays session up by 0.3% against the dollar, marking its second gain in the past three days, as part of its recovery from a two-month low of 1.1542 dollars.

US Dollar

The US Dollar Index fell by more than 0.2% on Wednesday, extending its losses for the second consecutive session and moving away from two-month highs, reflecting continued weakness in the greenback against a basket of major global currencies.

Jerome Powell left the door open for a potential interest rate cut at the Federal Reserves policy meeting on October 2829. He stated on Tuesday that the labor market remains stagnant, with both hiring and layoffs at low levels, and that the absence of official economic data due to the government shutdown has not prevented policymakers from assessing the economic outlook, at least for now.

Political Developments in France

French Prime Minister Sbastien Lecornu announced the suspension of the 2023 pension reform until after the presidential elections scheduled for 2027, in a move aimed at reducing political and social tensions and responding to strong pressure from left-wing lawmakers who warned that pushing ahead with the reform could jeopardize the political stability of the new government.

Analysts believe this shift reflects a move toward less austere fiscal policies compared to the previous administration, signaling Lecornus intent to calm public sentiment and strengthen confidence in his newly formed government.

At the same time, French bonds recorded strong performance, becoming the best among their eurozone peers, according to economist Marc Chandler, who noted that markets are viewing the easing of austerity measures and the support for political stability in Paris positively.

European Interest Rates

Market pricing currently shows less than a 10% probability of a 25-basis-point rate cut by the European Central Bank in October.

Traders have scaled back expectations for further monetary easing by the ECB, suggesting that the current rate-cutting cycle may be over for this year.

To reassess these probabilities, investors are awaiting a series of upcoming economic data releases in Europe, in addition to monitoring remarks from ECB officials.