The euro edged down to $1.14 on Tuesday, pressured by softer-than-expected inflation data, a downgraded global growth outlook from the OECD, and heightened political uncertainty in the Netherlands.
Euro slips on weak inflation
Eurozone consumer prices rose 1.9% year-on-year in May, falling short of the 2.0% forecast and marking the first time inflation dipped below the ECB’s target since September 2024. This weaker inflation reading reinforced market expectations for a 25 basis point ECB rate cut later this week and fueled speculation of further monetary easing in the months ahead, despite recent remarks from ECB officials signaling a preference for pausing rate cuts amid economic stabilization.
Adding to the euro’s downward pressure, the OECD revised its global growth forecast downward, projecting GDP growth to slow from 3.3% in 2024 to 2.9% in both 2025 and 2026. The organization cited escalating trade tensions, supply chain disruptions, and geopolitical uncertainties as key risks weighing on the global economic outlook. This dimmer growth projection underscores mounting concerns about the sustainability of the economic recovery and heightens investor caution in risk assets, including the euro.
Political instability further unsettled markets after the Dutch government collapsed amid deep divisions over immigration policy, raising uncertainty about the country’s political trajectory and potential impacts on European Union policymaking. The situation in the Netherlands adds to a growing list of political challenges facing the eurozone, with investors wary of how prolonged instability might affect fiscal policy and regional cohesion.
Trade policy uncertainty still hot topic
Meanwhile, trade policy uncertainty remained a major focus for markets, with reports emerging that the US administration has demanded final trade proposals by Wednesday as part of ongoing negotiations. This deadline comes just days after former President Donald Trump renewed his threat to double tariffs on steel and aluminum imports to 50%, heightening fears of escalating trade conflicts that could further disrupt global supply chains and dampen economic growth.
Together, these factors combined to weigh on the euro, as investors balanced cautious optimism about the region’s recovery against persistent risks from inflation, geopolitics, and trade. Market participants will closely watch the ECB’s upcoming policy decision, Dutch political developments, and US trade negotiations for further cues on the euro’s direction in the near term.
