The euro rose slightly in European trading on Friday against a basket of major currencies, attempting to recover from a two-week low against the US dollar as traders engaged in limited buying from lower levels. The move came ahead of key eurozone inflation data expected to offer strong clues about the likelihood of a rate cut by the European Central Bank (ECB) in December.

The single currency remains on track to post its first monthly loss in three months, weighed down by political tensions in France, escalating geopolitical risks in Eastern Europe, and a stronger appetite among investors for the US dollar as a safe-haven alternative.

In line with expectations, the ECB on Thursday kept its key interest rates unchanged at 2.15%, their lowest level since October 2022, marking the third consecutive meeting without a policy change.

Price overview

EUR/USD rose 0.1% to 1.1577 from an opening level of 1.1564, after touching a session low of 1.1563.

On Thursday, the euro fell 0.3% against the dollar, its second consecutive daily loss, hitting a two-week low at 1.1547 after both the ECB and Federal Reserve meetings.

Monthly performance

For October, the euro is currently down more than 1.3% against the dollar, on course for its first monthly decline in three months.

Downward pressure this month was driven by political instability in France the eurozones second-largest economy and rising geopolitical tensions in Eastern Europe amid intensifying conflict in Ukraine.

Investors also increased dollar holdings as a preferred safe-haven asset amid heightened global risks, including renewed US-China trade friction and the ongoing US government shutdown.

European Central Bank

The ECB confirmed on Thursday that it would leave rates unchanged at 2.15%, as expected, noting that inflation is now approaching the 2% medium-term target and that the Governing Councils assessment of inflation expectations remains broadly unchanged.

Christine Lagarde

ECB President Christine Lagarde said on Thursday that the bank remains in a good position and that risks to the economy are now more balanced than before. She added that the ECB will continue taking the necessary steps to preserve stability amid a volatile global environment.

Interest-rate outlook

Market pricing currently reflects less than a 10% probability of a 25-basis-point ECB rate cut in December.

Traders have largely scaled back bets on further policy easing, signaling that this years rate-cut cycle may already be over.

Eurozone inflation

To reassess these expectations, investors await the release of October inflation data later today, which will help determine how inflationary pressures are evolving across the bloc.

At 10:00 GMT, the eurozone consumer price index (CPI) is expected to show a 2.1% annual rise in October, down slightly from 2.2% in September, while core inflation is projected to ease to 2.3% from 2.4% previously.

Outlook for the euro

According to Economies.com: if inflation readings come in hotter than expected, market expectations for a December rate cut will likely diminish further a development that would support additional gains for the euro in the foreign-exchange market.