Euro Stays Under Pressure Amid Economic and Political Shifts

The euro has extended its slide against major currencies, with the EUR/USD pair dipping below the crucial 1.08 level—its lowest since early August. Over the past month, the euro has lost over 3% against the US dollar, weakened by economic concerns and political uncertainty. It’s also seen declines against other G-10 currencies, dropping 0.77% against the British pound, 1.47% against the Swiss franc, and 1.54% against the Australian dollar. 

The IMF recently downgraded the eurozone’s economic growth forecast, predicting a 1.2% expansion next year, down from its earlier estimate of 1.5%. Weakness in key sectors, particularly manufacturing in Germany and Italy, has impacted eurozone momentum. This softer outlook has led the European Central Bank (ECB) to cut rates for the third time this year, as inflation continues to undershoot targets, dipping to 1.8% in September.

Rising US Treasury yields are also adding to euro weakness. The US 10-year Treasury yield recently hit 4.21%, contrasting with modest yield increases on eurozone bonds, as Germany’s 10-year yield rose just 0.11%. 

Global political shifts are also unsettling sentiment. The upcoming US election is expected to support the US dollar further, particularly if market expectations of a Donald Trump victory materialize, raising concerns about potential tariffs on European goods. A Trump-led trade policy could lead to a trade war, driving divergence in US and European growth rates and pressuring the ECB to adopt a more dovish stance.