Euro Hits 4-week Low

The euro slipped below $1.14, touching its weakest point in a month, as investors continued to monitor developments in the Middle East while the dollar found support from lingering expectations that the Federal Reserve could still raise interest rates on Wednesday. Although a pause in US attacks on Iran pushed oil prices lower and eased inflation concerns, US Treasury yields retreated only modestly, reflecting continued caution. In Europe, money markets slightly pared expectations for additional ECB tightening but still price in nearly two 25 bp rate hikes by March 2027. ECB policymaker Peter Kazimir said at least one more rate increase will likely be needed to curb inflation, adding that a weaker economic outlook could justify even more tightening than markets currently anticipate, while Chief Economist Philip Lane said the current inflation shock remains moderate, supporting further policy tightening. Investors now await fresh inflation data later this week for further policy clues.

EURUSD decreased to 1.14, the lowest since June 2026. Over the past 4 weeks, Euro US Dollar lost 0.51%, and in the last 12 months, it decreased 1.62%.

The euro climbed back above $1.14, rebounding from near one-year lows reached last week, as easing tensions between the US and Iran and a sharp decline in oil prices improved risk sentiment. Brent crude retreated from two-month highs, helping ease inflation concerns and prompting money markets to slightly scale back expectations for further European Central Bank tightening, though they still price in nearly two 25-basis-point rate hikes by February 2027. ECB Chief Economist Philip Lane said the current inflation shock remains moderate, warranting some additional policy tightening but not an aggressive response. He also reiterated that inflation is expected to return to the ECB's 2% target over the coming year. Last week, the ECB left interest rates unchanged, as expected, while signaling that another rate hike in September remains possible. Investors now await fresh inflation data later this week for further clues on the policy outlook.