The euro surrendered early gains to slip below $1.16, its weakest level since April 6, and was on track for a weekly loss of about 0.7% as investors rotated into the US dollar following stronger-than-expected US labor data. US nonfarm payrolls jumped by 172,000 in May, nearly double the consensus estimate of 85,000, leading markets to fully price in a Federal Reserve interest rate hike by year-end.
At the same time, investors are preparing for a likely European Central Bank rate increase next week, while cautiously monitoring any progress on resolving tensions in the Middle East. Market pricing now implies an almost certain 25-basis-point ECB hike at the June 11 meeting, with a total of two or possibly three rate increases anticipated over the course of the year. This shift in expectations follows data showing euro-area inflation accelerated to 3.2% in May, its highest level in more than two and a half years.
Nonetheless, uncertainty persists after Eurozone GDP figures were revised to reveal a contraction in Q1 2026—the first decline since late 2022 and the sharpest since mid-2020—raising fresh concerns about the region’s growth outlook.
