There’s no respite for struggling European currencies as a likely pause in central bank interest-rate rises and a weakening economic outlook puts the focus on prospective rate cuts ahead.
Meanwhile, Thursday’s quarter-point rate rise in Sweden failed to provide much respite for the battered Scandinavian currency, which is down over 6% against the greenback so far this year. The European Central Bank last week lifted rates to a record 4% and upgraded its inflation forecast for 2024, but the euro fell and has lost almost 2% against the dollar this month.The ECB, like the U.S. Federal Reserve, has pushed the idea of rates staying higher for longer. This backdrop should support a currency but in the euro’s case, traders are homing in on the region’s economic underperformance and betting the ECB will be forced to cut before the Fed.
The dollar index which measures the U.S. currency against peers, is near its highest in over six months. The push and pull in market expectations ahead of rate decisions, as has been the case in Britain and the euro area this month, highlights rising volatility around central bank meetings. European central banks were “in a bind,” Fiotakis added, as higher oil prices also threatened to push inflation higher.