The euro rebounded to around $1.12 from its lowest level in a year and a half, as the US dollar weakened after Federal Reserve officials indicated they were prepared to wait for a clearer economic picture before taking further action. Their cautious tone led traders to scale back expectations of an October rate hike, offsetting the dollar support that had come from stronger-than-expected US inflation data.
At the same time, the euro remained under pressure amid expectations that the ECB would delay any additional rate increases until December and growing concern that stubborn inflation could weigh on economic growth. Fiscal uncertainty in highly indebted countries, particularly France, further clouded the currency’s outlook.
ECB President Christine Lagarde noted that energy-driven inflation had not yet spilled over into the broader euro-area economy, reinforcing a cautious stance on monetary policy. Even so, ECB policymaker Gediminas Šimkus stressed that a rate hike this month was still possible if conditions warranted it.
