Euro Steadies Near 17-Month Low as Germany Lifts Growth Forecast

Euro Advances Following Germany’s Upgraded Growth Forecast

The euro rose on Thursday after the German Economy Ministry raised its 2026 GDP growth forecast to 1.3% from a previous estimate of 0.5%, according to Barchart via Yahoo Finance. The EUR/USD currency pair gained 0.18% on the day.

The single currency erased overnight losses as investors responded to the improved outlook for Europe’s largest economy. Barchart reported that the euro also found support from the European Central Bank’s summary of its September policy meeting, which showed policymakers warned that further rate hikes may be necessary to contain inflation.

Earlier in the session, the euro had moved lower following weaker-than-expected German trade data for August. German exports unexpectedly fell by 0.8% month-on-month, the largest decline in nine months, while imports rose by 0.9% month-on-month, both figures coming in below expectations, according to Barchart via Yahoo Finance.

Dollar Index Retreats Amid Euro Strength

The dollar index fell by 0.08% on Thursday, reversing an early advance as the euro rallied, according to Barchart via Yahoo Finance. The dollar had initially strengthened after WTI crude oil prices surged by more than 4%, raising inflation expectations and supporting the case for additional Federal Reserve rate hikes.

Federal Reserve Governor Christopher Waller contributed to the dollar’s earlier strength with hawkish comments, stating, "If the economic data continue to come in as expected, I anticipate additional rate hikes to support a timelier return of inflation to our 2% goal," according to Barchart.

Despite the initial boost, the dollar retreated as the euro recovered, reflecting shifting sentiment in currency markets following the German growth revision and ECB policy signals.

ECB Policy and Market Expectations

The summary of the September 9-10 ECB meeting indicated that officials saw a need for further action on inflation, but also assessed that any interest rate increase would not curb growth, according to Barchart.

Markets are currently pricing in a 13% chance of a 25 basis point ECB rate hike at the next policy meeting on October 29, Barchart reported.

The euro’s rebound was further supported by the ECB’s stance, as investors weighed the likelihood of additional tightening against the backdrop of improved German growth prospects.

US Economic Data and Fed Policy Shape Currency Moves

US weekly initial unemployment claims unexpectedly fell by 2,000 to a 2.5-month low of 197,000, showing a stronger labor market than expectations of an increase to 200,000, according to Barchart. This data point, along with hawkish commentary from Federal Reserve officials, initially supported the dollar before the euro’s rebound.

Markets are pricing in a 19% chance of a 25 basis point Federal Reserve rate hike at the next FOMC meeting on October 27-28, Barchart reported.

The interplay between US labor market strength and evolving expectations for central bank policy continues to drive volatility in major currency pairs.

Why Germany’s Forecast Upgrade Matters

Germany’s upgraded 2026 GDP forecast to 1.3% from 0.5% signals improved expectations for Europe’s largest economy, which can bolster confidence in the euro and support broader market sentiment. A stronger growth outlook may also influence European Central Bank policy decisions and investor positioning in the currency markets.

With Germany representing a significant share of the Eurozone economy, the revised forecast provides a more optimistic backdrop for the region’s recovery prospects and could shape investor expectations for monetary policy and economic performance in the coming years.