Euro falls to one-month low

The euro slipped to around $1.16 on Thursday, hitting its lowest level in about a month as it came under pressure from a modest rebound in the US dollar.

The dollar’s renewed strength was bolstered by easing market expectations for Federal Reserve rate cuts this year, a shift driven by recent inflation data suggesting persistent price pressures. Adding to dollar support, President Donald Trump clarified that he had no plans to dismiss Fed Chair Jerome Powell, easing earlier market jitters about potential political interference with the central bank’s independence.

Meanwhile, investor focus remains sharply on trade developments between the US and the European Union. Optimism persists that both sides could reach a deal before the looming August 1 deadline, despite recent tensions.

President Trump announced a 30% tariff on certain EU imports set to begin next month, escalating trade tensions. However, he subsequently expressed a willingness to negotiate, signaling potential for de-escalation. The European Union responded by reaffirming its commitment to securing a mutually beneficial trade agreement, underscoring the importance both sides place on avoiding a full-scale trade conflict.

On the monetary policy front, markets are broadly aligned in expectations that the European Central Bank (ECB) will maintain interest rates at their current levels when it meets next week, reflecting a cautious approach amid mixed economic signals.

Nonetheless, traders are pricing in the possibility of at least one additional 25 basis point rate cut later this year as the ECB continues to grapple with sluggish growth and inflation dynamics. Eurozone inflation was confirmed at 2.0% year-on-year for June, meeting expectations, while core inflation—which strips out volatile energy and food prices—held steady at 2.3%. These inflation figures reinforce the ECB’s delicate balancing act of supporting economic growth while keeping price stability in check.

Overall, the euro’s recent decline reflects a combination of dollar strength, ongoing trade uncertainties, and cautious monetary policy expectations, leaving the currency vulnerable to further fluctuations in the coming weeks.