💶 The euro has fallen to its weakest level against the US dollar since August 2025, as growing expectations of additional Federal Reserve rate hikes widen the policy gap between the Fed and the European Central Bank.
🏦 Markets are now pricing in nearly a 50% probability of two Fed rate hikes in 2026, while Bank of America considers further tightening its base-case scenario. At the same time, falling oil prices and easing geopolitical tensions are reducing inflation pressures across the eurozone.
📉 The decline in energy prices is also weakening the case for further ECB tightening. Following June’s rate increase to 2.25%, investors are increasingly pricing out another hike before the end of the year as inflation concerns begin to ease.
📊 Economic momentum in Europe continues to slow. Although June PMI figures exceeded expectations, the services sector remained in contraction for a third consecutive month, signalling that business activity across the eurozone remains under pressure.
💰 Major institutions are turning bearish on the euro. HSBC believes lower oil prices are removing an important source of support, while Bank of America has adopted a tactical short position on EUR/USD, citing the widening gap between US and European monetary policy.
⚠️ With markets focusing more on interest rate differentials than geopolitics, investors are increasingly wondering whether the euro’s decline against the US dollar could still have further to run.
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