The euro is heading for its largest three-week decline against the dollar since 2022, down nearly 3%, as traders are now pricing in back-to-back rate cuts at the ECB’s upcoming meetings
The dollar was headed for its third weekly gain in a row on Friday, helped by a dovish ECB and strong U.S. data that is pushing out expectations for how fast U.S. rates can drop, particularly if Donald Trump wins the presidency.
A slew of economic data from China, including third-quarter growth figures, was met with a muted response from markets, though subsequent comments from the central bank providing further details of Beijing’s stimulus measures helped lift Chinese assets broadly.
Data Thursday showed U.S. consumer spending beat expectations last month, which added to the belief among investors that the country’s interest rates may not need to decline as quickly as many thought just a couple of weeks ago.
The ECB cut euro zone interest rates by a quarter point on Thursday, in line with expectations, in a nod to the deterioration in economic growth across the region.
The euro, which is near its lowest level since early August, is heading for its largest three-week decline against the dollar since 2022, down nearly 3%, as traders are now pricing in back-to-back rate cuts at the European Central Bank’s upcoming meetings.
Adding to the dollar’s gain was the rising prospect of Trump winning the November election, since his proposed tariff and tax policies are seen as likely to keep U.S. interest rates high.
I think there is potential for further decline in the euro. The ECB has reduced rates and did not give any hints about cutting in December, but given where inflation is, and given that the economic outlook is deteriorating, they are focussing on attempting to shore up the economy a bit more, according to City Index market strategist Fiona Cincotta.
I see potential for a future drop in the euro towards that $1.08 level, she added.
The euro was 0.1% higher on the day at $1.08378, having dropped for 14 out of the last 16 sessions.