The euro edged lower against the dollar on Monday as investors assessed the implications of recent central bank meetings. These meetings have bolstered the greenback to a two-year high and hinted at diverging rate cut paths for 2025.
The dollar index, which measures the U.S. currency against six major peers, rose 0.1% to 107.9, nearing Friday’s two-year peak of 108.54. Last week, the Federal Reserve’s unexpectedly measured stance on rate cuts spurred a rally in Treasury yields and the dollar while raising concerns for other economies, particularly in emerging markets.
U.S. Data and Fiscal Developments Provide Support
Friday’s U.S. inflation data revealed a modest rise in prices last month, easing fears of a rapid pace of rate cuts next year. However, core inflation, excluding food and energy, remains above the Federal Reserve’s 2% target.
Investor sentiment improved after Congress passed a stopgap spending bill early Saturday, averting a U.S. government shutdown.
Euro Pressured as ECB Signals Readiness for Further Cuts
In an interview with the Financial Times, European Central Bank President Christine Lagarde suggested that the eurozone is nearing its medium-term inflation target. Earlier statements in December indicated that the ECB could continue cutting interest rates if inflation trends further towards the 2% goal, easing the need for restrictive monetary policies.
Markets are pricing 125 basis points of ECB rate cuts next year, underscoring the divergence between the Fed’s slower easing trajectory and the eurozone’s anticipated policy shifts.
