Euro holds near two-month high

The euro traded just above $1.17 in a holiday-shortened week, staying close to its strongest level since late September as policy outlooks between the ECB and the Federal Reserve continued to diverge.

Last week, the European Central Bank left interest rates unchanged for a fourth straight meeting and signaled that rates are likely to remain at current levels for some time, noting that the eurozone has weathered US tariffs better than expected.

Recent economic data have also surprised to the upside, prompting the ECB to upgrade its growth outlook again following a similar move in September.

The central bank now forecasts eurozone growth at 1.4% in 2025, up from a prior estimate of 1.2%, while headline inflation is expected to hover around the 2% target through 2028.

In contrast, softer-than-expected US inflation readings have fueled speculation that the Federal Reserve may begin cutting rates next year, lending further support to the single currency.