Euro sharpens decline to five-month lows on concerns about the interest rate gap

Euro fell in European trade on Friday against a basket of major rivals, sharpening losses for the third straight session against the dollar and plumbing a five-month trough, while losing the $1.07 barrier for the first time since November 2023 amid concerns about the interest rate gap with the US.

The European Central Bank maintained interest rates unchanged at record highs this week but hinted at a potential rate cut in June. 

The EUR/USD pair is likely heading for the worst weekly performance in a year amid concerns about more losses to come. 

EUR/USD

The EUR/USD pair fell 0.5% today to $1.0675, the lowest since November 2023, with a session-high at $1.0729.

The pair lost 0.15% on Thursday, the second loss in a row after the ECB wrapped up its policy meeting.

The ECB 

As expected, the European Central Bank maintained interest rates unchanged at 4.5% this week.

The ECB said that current interest rates will help control inflation and ensure stable prices in the eurozone. 

The ECB expects inflation rates to approach the target in a sustainable way, which would allow for policy easing.

Lagarde 

ECB President Christine Lagarde said in her press conference following the meeting, that the ECB will continue to rely on data at each meeting to determine the appropriate level of interest rates. 

She said that when the ECB gains more confidence in its inflation outlook, it’ll move with rate cuts. 

Lagarde said the ECB will get a better picture from the data by April, and much more by June. 

European Rates

Most analysts now expect the ECB to start cutting interest rates at the June meeting as inflation continues to trend downward. 

Interest Rate Gap

The current US/Eurozone interest rate gap stands at 100 basis points in the favor of the US, and it could increase to 125 basis points in June if the ECB went ahead with the rate cut. 

Weekly Trades

The EUR/USD pair is down 1.5% so far this week, on track for the largest weekly loss since May 2023.