The euro fell in European trading on Monday against a basket of global currencies, heading toward its first loss in three sessions versus the US dollar, pressured by concerns over France’s financial stability following a credit downgrade for the eurozone’s second-largest economy.
After last week’s hawkish European Central Bank meeting, the chances of further rate cuts in Europe by year-end diminished. To confirm these expectations, investors are now waiting for additional evidence on the future path of monetary easing in the euro area.
Price Overview
• Euro exchange rate today: the euro declined against the dollar by more than 0.1% to $1.1722, from an opening of $1.1735, after hitting a high of $1.1736.
• The euro ended Friday slightly higher, gaining less than 0.1% against the dollar in its second consecutive daily advance.
• Last week, the euro gained 0.2% versus the dollar, also its second straight weekly rise, supported by reduced odds of further European rate cuts compared to rising expectations of US Federal Reserve easing.
Financial Stability in France
Fitch’s decision on Friday to downgrade France’s sovereign credit rating to its lowest ever triggered widespread concern in global financial markets. The loss of AA- status for the eurozone’s second-largest economy is viewed as a troubling sign of Europe’s fiscal fragility.
The downgrade reflects a combination of domestic political tensions and worsening public debt, adding pressure to European bond markets and raising fears among investors of contagion to other economies within the bloc.
European Interest Rates
• In line with expectations, the ECB last week left its main interest rate unchanged at 2.15%, the lowest level since October 2022, marking the second consecutive meeting with no change.
• In its monetary policy statement, the ECB said inflation is currently nearing its 2% medium-term target and that the Governing Council’s overall assessment of inflation expectations remained broadly unchanged.
• Sources indicated that policymakers believe no further rate cuts are needed to reach the 2% inflation goal, despite new economic forecasts pointing to lower rates over the next two years.
• Sources also noted that unless the eurozone faces another major economic shock, borrowing costs are expected to remain at current levels for some time.
• Market pricing for an October rate cut of 25 basis points has dropped from 30% to under 10%.
• Traders have pared back bets on ECB easing, signaling an end to this year’s rate-cutting cycle.
• To reassess these expectations, investors will closely monitor upcoming European economic data and remarks from ECB officials in the coming period.
