Euro hits one-month low near $1.16 as dollar strengthens

The euro fell to $1.16 on Tuesday, marking its lowest level in about a month, as it came under pressure from a modest rebound in the U.S. dollar. The dollar’s recent strength was supported by waning expectations for Federal Reserve rate cuts this year, a shift prompted by stronger-than-anticipated inflation data and President Donald Trump’s remarks signaling that he would not interfere with Fed Chair Jerome Powell’s independence.

This reinforced investor confidence that the Fed might maintain a more cautious approach to easing monetary policy, thereby bolstering the greenback.

Meanwhile, market attention remained firmly fixed on ongoing trade developments, with optimism persisting that a last-minute agreement between the U.S. and the European Union could still be reached ahead of the looming August 1 tariff deadline. President Trump’s earlier announcement of a 30% tariff on a wide range of EU imports beginning next month raised immediate concerns about the potential for a trade war.

However, his subsequent willingness to negotiate helped ease some of the initial market jitters. In response, the EU reaffirmed its commitment to securing a mutually beneficial trade agreement, signaling that diplomatic efforts continue despite the tough rhetoric.

On the monetary policy front, investors broadly expect the European Central Bank (ECB) to maintain its current interest rates at the upcoming meeting next week, reflecting a wait-and-see approach amid mixed economic signals. However, the market is still pricing in the possibility of one more 25 basis point rate cut later this year, as inflationary pressures remain subdued and economic growth in the eurozone shows signs of slowing.

June’s inflation data confirmed headline inflation steady at 2% year-on-year, just meeting the ECB’s target, while core inflation—excluding volatile food and energy prices—held firm at 2.3%. This steady core inflation figure underscores ongoing price pressures in underlying sectors but also highlights the ECB’s challenge in balancing growth support with inflation control.

Looking ahead, the euro’s trajectory will likely continue to be shaped by developments in the transatlantic trade dispute, shifts in monetary policy expectations on both sides of the Atlantic, and fresh economic data from the eurozone. Any breakthrough in trade talks could relieve some of the euro’s current pressure, while renewed tensions or weaker economic indicators might push the currency lower. Additionally, political uncertainties within the EU and broader global risk sentiment will remain key factors influencing investor appetite for the single currency in the near term.