The euro slipped toward $1.135, its weakest level since June 26, as investors digested comments from ECB President Christine Lagarde, while the US dollar stayed firm amid waning optimism over US-Iran negotiations and rising expectations of additional Federal Reserve rate hikes.
Lagarde noted that the inflation outlook for 2027 and 2028 is now higher than policymakers anticipated a few months ago, largely due to elevated energy prices. However, she emphasized that there is still no clear evidence of higher energy costs feeding through into stronger wage growth. She stressed that although the energy shock is too significant to overlook, a measured policy response remains appropriate to keep inflation in check.
Money markets are currently pricing in around 100 basis points of ECB rate increases by the end of 2027. Investors are now looking ahead to key eurozone inflation figures due later this week for further signals on the ECB’s future monetary policy path.
