The euro weakened toward the $1.03 mark as investors flocked to the US dollar following a stronger-than-expected US CPI report, which reinforced expectations that the Federal Reserve will maintain a cautious stance on rate cuts.
Euro weakens toward $1.03
This stands in contrast to the European Central Bank’s more accommodative policy, as policymakers in the eurozone have signaled a willingness to ease monetary conditions amid slowing economic growth.
US consumer prices rose by 0.5% in January, marking the largest monthly increase since August 2023 and surpassing expectations of a 0.3% rise. On an annual basis, inflation unexpectedly accelerated to 3% from December’s 2.9%, underscoring persistent inflationary pressures that could keep interest rates elevated for longer. The data fueled a surge in Treasury yields and strengthened the dollar, making the euro less attractive to investors.
Trade war hits market sentiment
At the same time, market sentiment was further weighed down by escalating US-EU trade tensions. The European Union vowed to retaliate against newly announced US tariffs on European steel and aluminum, sparking concerns over a potential trade war between the two economic blocs. European Commission President Ursula von der Leyen condemned the tariffs as “unjustified” and pledged firm countermeasures, while German Chancellor Olaf Scholz issued a stark warning, stating that Europe would respond “within an hour” if the measures were enforced. The escalating rhetoric has raised fears of disruptions to transatlantic trade, adding further pressure on the euro.
Eurozone data also weighs on trading activity
Additionally, weaker-than-expected economic data from the eurozone has exacerbated concerns about the region’s growth outlook. Recent reports have shown sluggish industrial output and declining business sentiment, reinforcing speculation that the ECB may move ahead with rate cuts sooner than the Fed. As a result, traders have adjusted their positions, favoring the dollar over the euro amid growing divergence in monetary policy expectations.
