Euro edges lower as oil prices rise

The euro experienced a slight decline on Thursday, following a three-day rally, as energy prices increased due to uncertainties surrounding the Iran war before the new Democratic-controlled US Congress takes office in January. Citi noted concerns about potential escalations in tensions with Iran after the midterm elections, which resulted in Democrats gaining control of the Senate and House of Representatives.

This shift in power led to gains in US Treasuries and global equities, though doubts remained about the new Congress's cooperation with the artificial intelligence sector. The euro dropped 0.1 per cent to US$1.1216, after reaching its highest level since Oct 6 at US$1.1273. Meanwhile, the oil price surged by 2 per cent after a three-day decline.

Deutsche Bank's George Saravelos expressed optimism about the euro's bottoming out, attributing it to lower energy prices and a reduced global policy risk premium, despite higher AI implementation risks. Analysts at Unicredit stated that the euro/dollar pair needs to surpass US$1.1325 to alleviate selling pressure in the short term.

The dollar index increased by 0.13 per cent to 101.62, marking its lowest point since Sep 30. Despite the political changes in the US, expectations for the Federal Reserve's interest rate path remained unchanged, with a 80.7 per cent probability of a 25 basis points increase at the December meeting, according to CME FedWatch. The British pound remained stable against both the euro and the dollar following the Bank of England's interest rate hike, which investors did not interpret as the beginning of a rigorous tightening cycle.

Conversely, the Japanese yen gained, buoyed by the Bank of Japan's decision to raise rates to a 31-year high of 1.25 per cent, reflecting expectations for additional interest rate hikes in the future.