/cloudfront-us-east-2.images.arcpublishing.com/reuters/TGHMY7C6UZLTLJERXFE3AO3SKE.jpg "Euro weakens as ECB rate pause rumors grow, dollar steady ahead of Powell speech")
The euro reached its lowest level since mid-June due to growing concerns that the European Central Bank (ECB) may pause rate hikes. According to sources with direct knowledge of the discussion, ECB policymakers are increasingly worried about weakening growth prospects and momentum is building for a pause in rate hikes. The release of this report caused the euro to fall further, hitting its lowest level at around $1.0766. Meanwhile, the dollar remained strong ahead of a speech by Federal Reserve Chair Jerome Powell. The dollar index, which measures the performance of the US currency against six others, rose to 104.25, the highest since June 7.
Both the euro and the pound have been negatively impacted by weak business activity data, leading investors to scale back bets on further rate hikes in the euro area and Britain. The pound reached its lowest level since June, but later trimmed losses to trade just slightly weaker on the day. On the other hand, the dollar index is heading for its sixth consecutive week of gains, supported by signs of resilience in the US economy that suggest higher interest rates will be maintained. However, the future trajectory of US interest rates remains uncertain. While the market currently expects rate cuts to begin in May next year, some analysts are skeptical about this as they question whether the economic conditions would justify monetary easing at that time.
In other currencies, the yen weakened slightly against the dollar, while the Australian and New Zealand dollars experienced little change and a slight decline, respectively. Traders are closely monitoring the yen, as it hovers around the level at which Japanese authorities intervened last year, which could signal potential similar moves in the future. Overall, the dollar remains strong compared to other currencies, with the dollar index set to snap its two-month losing streak and its futures pricing indicating expectations for higher rates to be maintained above 5% through June 2024. However, uncertainties remain around the Fed’s future rate cuts and the potential economic justifications for monetary easing.