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The euro flattened on Monday, staying near a five-year low against the US dollar, as investors sought safety in the greenback amid worries about slowing global growth.
The war in Ukraine and its economic fallout, in particular soaring food and energy inflation, has been a major drag on the euro, which has weakened more than 8 per cent against the dollar this year. The difference between the European Central Bank and the US Federal Reserve response to higher inflation has also weighed on the euro.
Data on Friday showed euro zone inflation surging to another record, adding to the case for the ECB to raise interest rates this month.
Jeremy Stretch, head of G10 FX strategy at CIBC said he expected headwinds on the euro to persist as the ECB is set to hike rates on July 21 by “a mere 25 basis point”.
“ECB action remains moderate when compared with a 75bps Fed hike,” he said. “Beyond ECB monetary policy discussion, the primary European Union risk variable relates to the energy sector.”
(TDS)
