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The euro weakened against the US dollar as markets priced in expectations of delayed rate hikes by the European Central Bank (ECB). The EUR/USD pair fell to multi-month lows, with the euro posting its worst quarterly performance since 2024 amid concerns over the European economy's resilience and geopolitical tensions in the Middle East. The US dollar, meanwhile, saw its strongest monthly gain since September 2022, driven by stronger-than-expected inflation data and a hawkish Federal Reserve stance.
This divergence between the euro and dollar highlights shifting investor sentiment. Traders are increasingly wary of the ECB's slower policy normalization compared to the Fed, which could widen the yield gap between the two currencies. The euro's weakness also reflects broader concerns about energy costs and economic stagnation in the Eurozone, impacting related assets like European equities and commodities.
Looking ahead, the ECB's upcoming policy decisions and inflation data from the Eurozone will be critical. Traders should monitor the June rate decision and potential shifts in market positioning. Geopolitical developments in the Middle East, particularly involving Iran, could further influence risk appetite and currency flows.
