The euro dropped to $1.04, approaching its lowest level since November 2022, as a strong dollar gained momentum following the Federal Reserve's hawkish outlook for 2025.
Euro drops at lowest level since November 2022
While the Fed cut the federal funds rate by 25 basis points as anticipated, it signaled only 50 basis points of rate cuts for 2025, half of what was projected in September. In contrast, the European Central Bank (ECB) has already reduced its key deposit rate four times this year and remains cautious about further easing. However, many analysts suggest the ECB might need to accelerate policy loosening to bolster the fragile Eurozone economy.
Focus on data and policy moves
Flash PMIs indicated another contraction in private sector activity, albeit at a slower pace, with Germany and France continuing to lag. Additionally, the annual inflation rate rose less than expected, reaching 2.2% compared to initial estimates of 2.3%. Political uncertainty further weighed on the euro. In Germany, the Chancellor lost a confidence vote in Parliament as anticipated, while in France, the new government faces significant challenges, including the passage of the 2025 budget.
