EUR/USD may rise as markets price in a December Fed rate cut, with structural factors and energy markets providing additional support. European Natural Gas prices have fallen to their lowest since early 2024, enhancing Euro competitiveness—but cold weather could tighten markets and reverse gains, Danske Bank's FX analyst Kirstine Kundby-Nielsen reports.

Natural Gas price drop supports Euro

"We now expect the Federal Reserve to cut interest rates in December. It means structural drivers could take the forefront again and start push EUR/USD higher."

"EUR/USD is also getting support from an unexpected side, namely the Natural Gas market. The European Natural Gas price has dropped to the lowest level since early 2024 and the spread to US Natural Gas prices has narrowed to the tightest level since 2021. This is good news for EUR/USD as European manufacturers regain competitiveness, while US energy exporters lose revenue."

"European Natural Gas storages are low for this time of year; hence, this benign environment for EUR/USD could end if the temperature suddenly drops in Europe and the need to draw down inventories rise leading to tighter market conditions and a rebound in European prices."