The EUR/USD pair extended its decline on Monday, trading around 1.1550 during the Asian session after three consecutive days of losses. The euro weakened as the US dollar (USD) gained support from renewed optimism that the record-long US government shutdown may soon end, following reports of progress toward a bipartisan deal in Washington.
USD gains as lawmakers move toward shutdown resolution
Bloomberg reported that a group of centrist Senate Democrats agreed to back a proposal that would reopen the government and fund several agencies through next year. The plan ensures federal employees receive back pay and allows states to resume delayed transfers, with certain departments funded through January 30 and others for the full fiscal year.
The news lifted investor sentiment toward the USD, which benefited from easing political uncertainty and expectations of restored fiscal stability.
Mixed us economic outlook tempers dollar strength
Despite the improved political outlook, recent US economic data has shown signs of strain. Treasury Secretary Scott Bessent acknowledged that the ongoing shutdown had been increasingly weighing on the economy but expressed optimism about continued progress on inflation, expecting prices to ease over the coming months.
Meanwhile, the University of Michigan’s Consumer Sentiment Index dropped sharply to 50.3 in November—the lowest reading since June 2022—down from 53.6 in October and below the forecast of 53.2. The sharp decline underscored growing consumer pessimism amid fiscal uncertainty, capping the dollar’s upside momentum.
Euro outlook supported by ecb’s cautious stance
The euro may find some support from diverging monetary policy expectations between the European Central Bank (ECB) and the Federal Reserve (Fed). While markets anticipate further rate cuts from the Fed in the coming months, expectations for ECB easing have moderated significantly. Money markets now price only a 45% chance of a rate cut by September 2026, down from more than 80% in October.
ECB policymakers have maintained a cautious tone. Governing Council member Francois Villeroy de Galhau emphasized the importance of keeping policy options open, while Joachim Nagel urged continued vigilance on inflation risks. Vice President Luis de Guindos added that any drop in inflation below the 2% target would likely be temporary, signaling the ECB’s readiness to hold rates steady for longer.
