The euro fell in the European market on Tuesday against a basket of global currencies, continuing its losses for the second day in a row against the US dollar, and is close to touching its lowest level in two months, under negative pressure due to concerns about widening interest rate differentials between Europe and the United States.
The remarks made by European Central Bank President Christine Lagarde during her testimony before the European Parliament in Brussels were less hawkish than the markets had expected, which led to a decrease in the likelihood of raising European interest rates next October.
Price overview
Euro exchange rate today: The euro fell against the dollar by 0.15% to ($1.1355), from today’s opening price of ($1.1371), and recorded a high of ($1.1374).
The euro ended Monday's trading down about 0.2% against the dollar, hitting a two-month low of $1.1353, due to a fresh jump in U.S. Treasury yields, as well as less aggressive comments from the European Central Bank president.
US dollar
The dollar index rose nearly 0.2% on Tuesday, maintaining its gains for the second consecutive session, reflecting the continued rise in the levels of the US currency against a basket of global currencies.
This rise is due to dollar purchases as the best available investment in light of aggressive expectations for the path of US interest rates, and as the best alternative investment in light of ongoing geopolitical tensions in the Middle East region.
The yield on 10-year US Treasury bonds rose 0.65% on Tuesday, continuing its climb for the second consecutive session and nearing its highest level in 19 years, providing further support for the US dollar exchange rate.
According to the CME Group's FedWatch tool: The probability of the Federal Reserve keeping interest rates unchanged at its October meeting is currently priced at 30%, and the probability of a 25-basis-point rate hike is priced at 70%.
In order to reprice those possibilities, investors are awaiting later today the release of important data on the US labor market, regarding job openings at the end of last August.
Christine Lagarde
European Central Bank President Christine Lagarde told the European Parliament's Economic and Monetary Affairs Committee in Brussels on Monday that the energy shock is raising inflation expectations, but there are still no signs of a tangible impact.
Lagarde added that higher energy prices will make inflation higher in 2027 and 2028 compared to previous forecasts, but stressed that there is currently no evidence that higher energy prices are being passed on to wages.
Lagarde stressed that the bank does not currently see a need for an exaggerated response to the inflation shock, considering that the size of the shock does not allow it to be ignored, but a gradual monetary response remains appropriate at the moment.
European interest rate
Following the above statements, the money market's pricing of the likelihood of the European Central Bank raising European interest rates by about 25 basis points next October has fallen from 50% to 40%.
In order to reprice those probabilities, investors are awaiting the release of key inflation data in Europe for September this week.
Investors are also following today's remarks by European Central Bank President Christine Lagarde at a European Central Bank legal conference in Frankfurt.
Interest rate differentials
After the Federal Reserve recently raised US interest rates by about 25 basis points to a 4% range, the interest rate differential between Europe and the United States has widened to 135 basis points in favor of the US interest rate, which enhances the investment opportunities in the US dollar against the euro.
