Euro posts modest gains near 1.1100 as traders assess ECB's rate path

The EUR/USD currency pair saw slight gains near 1.1095 during the initial Asian trading hours on Thursday. However, the potential for the major pair to rise further may be hindered by expectations of a higher interest rate increase from the US Federal Reserve (Fed) this year. The Consumer Price Index (CPI) rose 0.4% month-over-month (MoM) in October, surpassing the prior 0.6% growth.

Although this figure was higher than market expectations of 0.3%, it was still below the forecast for a 0.2% gain when excluding volatile food and energy prices. The so-called core CPI increased 0.3%. Fed Governor Christopher Waller suggested that a hot inflation report could lead him to recommend a half-point increase in December, with traders pricing in a 87.3% chance of a Fed rate hike at their next meeting on December 8-9.

Meanwhile, ECB policymaker Philip Lane noted that while energy prices may be falling, the ECB's interest rate decisions will depend on how the recent surge in fuel costs influences wages and other prices. ECB President Christine Lagarde indicated that the central bank is assessing indicators to determine if a rate hike is justified next month since it held rates steady in October.

Rabobank strategists noted that while the Fed is not the only G10 central bank expected to hike rates in December, the ECB could be reluctant to tighten policy beyond December, citing signals from the last ECB press conference suggesting concerns about growth outlook. Rabobank forecast a move to EUR/USD 1.10 on a 3-month view, supported by ECB policymaker Philip Lane's cautious tone on forward guidance.

The bearish near-term tone of EUR/USD was evident in the daily chart, with spot price below a cluster of volatility and trend indicators. The 20-day Bollinger Bands were entirely above price, acting as immediate overhead supply, while the upper band and the 100-day simple moving average reinforced a broader downside bias.