The euro fell to its lowest level since mid-June on Friday, knocked down by growing expectations that the European Central Bank could soon pause rate hikes while the dollar was broadly robust ahead of a speech by Federal Reserve Chair Jerome Powell.
- ECB policymakers are increasingly worried about weakening growth prospects and, while the debate is still open, momentum for a pause in its rate hikes is building.
- The euro fell to a fresh low following the release of that report, hitting its lowest since mid-June at around $1.0766.
- The dollar index, which measures the U.S. currency against six others, rose to 104.25, the highest since June 7.
- Powell speaks at the Jackson Hole Economic Policy Symposium at 1405 GMT, while ECB chief Christine Lagarde speaks at the same gathering later in the day.
- Both the euro and sterling have been hit this week by weak business activity data that has prompted investors to scale back bets on further rate hikes in the euro area and Britain.
- Sterling touched its lowest level since June at around $1.2560 before trimming losses to around $1.2591 to trade just a touch softer on the day.
- The yen weakened 0.2% to 146 per dollar as the Asian currency straddled the level at which Japanese authorities intervened last year, keeping traders on their toes looking for signs of similar moves this time.
The main drivers of the euro`s weakness are:
- Expectations that the ECB could soon pause rate hikes due to concerns about weakening growth.
- A stronger dollar, which is being supported by signs of resilience in the U.S. economy.
- Weak business activity data from the euro area and Britain.
The euro is likely to remain under pressure in the near term as the ECB is seen as less likely to raise rates than the Fed. The dollar is also likely to continue to strengthen as the U.S. economy remains on solid footing.
Note: It is important to note that these are just possible price targets, and the actual direction of the euro/dollar exchange rate could be different. The euro could strengthen if the ECB surprises markets with a rate hike, or if the U.S. economy experiences a slowdown.
It is also important to remember that currency markets are unpredictable, and any prediction could be wrong. Investors should always do their own research before making any investment decisions.