Euro Declines to Two-Month Low Amid Shifting ECB Policies

The euro has fallen to a two-month low against the US dollar, largely driven by the release of the Federal Reserve's recent meeting minutes. The currency, which had seen strength earlier in the year, has now slipped by 2.3%, dropping from 1.12 to just above 1.09 against the dollar. 

This decline is expected to persist as markets anticipate further changes in policy from both the European Central Bank (ECB) and the Federal Reserve.

The minutes revealed a divided Federal Reserve, with officials debating the necessity of a 0.5% rate cut, which ultimately strengthened the US dollar. Investors now expect smaller rate cuts of 0.25% in both the upcoming November and December meetings, following concerns over a possible slowdown in the US labor market. However, stronger-than-expected September jobs data eased these fears, contributing to a rise in US bond yields, with the 10-year Treasury yield reaching 4.07%, its highest since July.

Meanwhile, the ECB faces economic challenges as weak data and falling inflation rates, such as the Eurozone's Consumer Price Index dipping to 1.8% in September, suggest a more dovish policy stance. 

This is in contrast to the ECB’s previous hawkish approach, which now appears increasingly unlikely to continue. Analysts anticipate a quarter-point rate cut in the ECB’s next meeting, a shift driven by economic fragility in the Eurozone.