Euro’s Mid‑Morning Slide: 0.15% Dip to 1.07170
The euro slipped a tiny 0.15% after 9:00 a.m. GMT, landing at 1.07170 against the dollar. It’s a modest drop, but it’s enough to keep traders on their toes.
What’s Fueling the Weakness?
- Eurozone bond yields are on the rise, adding a bit of pressure to the currency.
- Investor sentiment in Germany and the Eurozone tops its highs from over two years ago, yet it’s stagnant—mostly because everyone’s watching inflation more closely.
- The ZEW Economic Sentiment Index for June reported its highest readings since late 2021 for the Eurozone and early 2022 for Germany (51.3 and 47.5, respectively). The surprise was sweet for the Eurozone but a bit disappointing for Germany.
Europe’s Inflation Outlook
The European Central Bank cut rates for the first time since 2019 during its latest meeting. But the statement carried a strict tone, warning that the inflation target might not hit until 2026. That has dampened the optimism of investors who hoped for a quick inflation win.
Bundy Bandits and Treasury Tangles
German ten‑year bund yields bounced back after hitting a two‑month low, but the euro stayed on the losing side as U.S. Treasury yields climbed. The gap between the 10‑year Treasuries and German bundles reached a two‑week low, which may keep widening and make it harder for the euro to recover.
Fed’s Footsteps
- The market expects the Federal Reserve to keep rates steady until at least September, with a 62% probability of a 25‑basis‑point cut that year.
- Overall expectations suggest no more than one rate cut this year, hinting at a longer run of higher rates.
What’s Next on the Calendar?
- German Manufacturing and Services PMIs for June will slide into focus.
- U.S. Retail Sales for May and statements from Federal Reserve officials are set to arrive later this week.
- More restrictive Fed remarks could keep the euro from regaining any lost ground.
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