Euro Weakens to 2025 Lows

The euro extended its decline, sliding towards the $1.11 level and touching its weakest point since March 2025, as the dollar remained supported by growing expectations of further Federal Reserve tightening in December. Meanwhile, the recent decline in oil prices lost momentum, with Brent crude stabilizing following shipping attacks in the Strait of Hormuz. Markets continued to digest hotter-than-expected US inflation data, which strengthened expectations of another Fed rate increase next month and raised the prospect of a more aggressive 50bp hike. In Europe, persistent political and fiscal uncertainty in France, coupled with concerns over a weakening growth outlook and speculation surrounding the succession to the ECB presidency, further weighed on sentiment. On the policy front, ECB Chief Economist Philip Lane suggested that another rate increase in December could be warranted, adding to the growing number of policymakers expressing support for a third rate hike this year.

The euro extended its decline, falling below the $1.115 level and approaching its October multi-month lows, as the US dollar remained supported by expectations of further Federal Reserve tightening in December. The recent decline in oil prices also lost momentum, with Brent crude stabilizing following shipping attacks in the Strait of Hormuz. Meanwhile, markets continued to assess hotter-than-expected US inflation data, which reinforced expectations of another Fed rate increase in December and raised the possibility of a 50-basis-point hike. In Europe, persistent political and fiscal challenges in France, alongside uncertainty surrounding the possibility of an early departure by ECB President Christine Lagarde, continued to undermine market sentiment. On the monetary policy front, ECB Chief Economist Philip Lane indicated that another rate increase in December could be justified, adding to the growing number of policymakers signaling support for a third rate hike this year.

The euro slipped below $1.12 as hawkish remarks from Federal Reserve Governor Christopher Waller and stronger-than-expected US inflation data boosted the dollar. This followed a recent recovery in the common currency, supported by easing AI and Middle East concerns and falling oil prices. The dollar strengthened on Tuesday after Waller signaled the possibility of further rate increases, while October's stronger-than-expected US inflation reinforced expectations of additional Fed tightening in December. Meanwhile, the euro remains under pressure from France's political and fiscal challenges and uncertainty surrounding ECB President Christine Lagarde's potential early departure. The succession race is gaining attention, with Klaas Knot and Pablo Hernández de Cos emerging as potential candidates. On monetary policy, ECB Chief Economist Philip Lane signaled that another rate increase in December may be necessary, adding to growing calls among policymakers for a third hike this year.