The euro slipped to $1.11—its weakest level since May 2025—after the European Central Bank left interest rates unchanged. Sentiment was further pressured by reports that President Christine Lagarde plans to step down early, as well as by concerns over elevated energy prices and France’s fiscal outlook.
Policymakers adopted a wait-and-see stance after two rate increases following the Iran war’s disruption of energy markets. While officials cautioned that inflation could climb to nearly twice the ECB’s 2% target, they noted that they have not yet seen convincing evidence that higher oil and gas prices are feeding through to broader price pressures.
The ECB offered little forward guidance on its future rate trajectory, with policymakers partly counting on tighter financial conditions to restrain inflation. Money markets trimmed expectations for further tightening, now pricing in about 70 basis points of additional rate hikes by the end of 2027, down from roughly 72 basis points previously.
