The euro experienced a slight recovery, trading above $1.15 after hitting a three-month low. This movement comes as investors assess the contrasting monetary policy paths of the European Central Bank (ECB) and the US Federal Reserve. Market expectations for an ECB rate cut have diminished significantly, while the US dollar faced pressure due to rising layoff figures, increasing speculation about a near-term Fed rate cut.
- The euro traded above $1.15, attempting to recover from a three-month low.
- Money markets now price only a 45% chance of an ECB rate cut by September 2026, down from over 80% in October.
- ECB officials, including François Villeroy de Galhau, Joachim Nagel, and Luis de Guindos, struck a cautious tone regarding inflation and policy options.
The asset’s movement reflects a market grappling with uncertainty. The divergence in central bank approaches, with the ECB signaling a more patient stance and the potential for earlier rate cuts from the Federal Reserve in the US, is creating volatility and opportunity. The cautionary statements from European central bankers highlight concern about inflation persistence, potentially limiting the extent to which the euro can strengthen in the near term.