MediumIV Macro Policy & Sovereign Debt11 November 2026, Wednesday

The euro slips below 1.11 despite ECB talk of a hike

The euro fell 0.67% against the dollar on 11 November to 1.1089, its weakest level since March 2025. The same day ECB chief economist Lane said another hike might be needed in December; the currency did not respond.

Location: FRANKFURT

Trading Economics data show EUR/USD closing 11 November at 1.1089, down 0.60% over a month and 4.35% over a year. At the Capp Notes close the pair stood at 1.1088 and the dollar index was up 0.67% at 102.92. In Talay's 9 October entry the euro had hit a 17-month low of 1.1161; that level is now behind it.

The market's first explanation is the Fed. After hot US inflation data on 10 November, fed funds futures fully priced a December hike. Yet the ECB is tightening too. Lane kept a December hike on the table on 11 November, and on 9 November the market put its probability at 66%. The deposit rate is 2.50%, while October inflation was 4.0% according to Eurostat's flash estimate.

The second weight on the currency is Paris. France's 10-year yield reached 4.80% on 11 November, up 1.42 points over a year. A Trading Economics note on 11 November lists France's political and fiscal troubles, and uncertainty over Lagarde's early departure, among the pressures on the euro. As long as the ECB's 2.50% deposit rate sits 1.5 points below 4.0% headline inflation, the promise of a hike is not enough to support the currency.

Talay assessment

Bottom line

The euro broke below 1.11 in a week when the ECB, too, was signalling hikes. That shows the currency is pricing not only the Fed but also the ECB's negative real rate and France's risk premium. A December hike on its own is unlikely to turn the euro around; a fiscal anchor in Paris and easing energy prices matter more.

Likely effects

Euro area inflationNegative1–6 months
Dollar-priced energy imports become more expensive; the fall in 20.8% energy inflation is delayed and pressure on the ECB to keep hiking after December grows.
Turkish tradeNegative1–6 months
Exporters earning mainly in euros pay more to cover dollar costs as the pair falls; the euro leg of the lira basket weakens.
European sovereign debtNegativeWeeks
A weaker currency raises total risk on French debt for foreign investors; the France-Germany spread keeps its widening bias.

Possibilities, ranked

1
Range trading at 1.10–1.1250%
The ECB hikes 25 basis points in December and France's budget stays in limbo; the euro trades weakly within the range.
Watch: ECB December decision and the path of France's 10-year yield from 4.80%
2
A break below 1.1030%
France's budget crisis deepens or the Fed hikes 50 basis points; the euro falls to levels last seen before March 2025.
Watch: The 1.10 threshold on EUR/USD and the dollar index above 103
3
Energy-led recovery20%
A lasting reopening of Hormuz lowers Brent, headline inflation eases and the euro climbs back above 1.12.
Watch: Brent holding below $90 and the November flash HICP

Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.

Market reaction

Indicators affected

EUR/USD▼ −0.67%
Dollar index▲ +0.67%

Historical context