The euro has fallen to its lowest level in over a year, pressured by the strong dollar. This is attributed to growing expectations that the European Central Bank (ECB) is unlikely to implement additional rate hikes, as falling oil prices and signs of an economic slowdown have become more apparent.
Reuters Yonhap News
On June 24 (local time) in the New York foreign exchange market, the euro-dollar exchange rate stood at 1.13534 dollars, down 0.00255 dollars (0.224%) from the previous session. The rate has declined by 2.6% this month, marking its lowest point since June last year.
The Financial Times (FT) noted that the euro’s weakness emerged after the United States and Iran reached an agreement to normalize crude oil shipments through the Strait of Hormuz. This deal has raised expectations that the inflation shock stemming from oil prices will be alleviated. As a result, the ECB, which already raised rates this month, is now seen as having less need for further tightening.
Lee Hardman, Senior FX Economist at MUFG, said, “The eurozone economy has slowed due to the aftermath of the energy price shock,” adding, “The combination of slowing growth in the eurozone and falling energy prices is easing the pressure on the ECB to raise rates further.”
The euro was significantly stronger against the dollar at the beginning of this year. As U.S. President Donald Trump pursued a series of unpredictable foreign and trade policies, investors’ preference for the dollar weakened, benefiting the euro. However, after war broke out between the United States and Iran at the end of February, the dollar regained strength and the euro fell sharply. Concerns grew that soaring oil prices could hinder the growth of European countries, which are highly dependent on energy imports.
Investors are now also paying attention to signs of an economic slowdown. The eurozone composite Purchasing Managers’ Index (PMI) for June, released by S&P Global, rose to 49.5 from 48.5 in May, the highest level in three months. However, as it remains below the benchmark of 50 that separates expansion from contraction, it indicates that the eurozone economy is still in contraction. ECB President Christine Lagarde also recently stated that economic indicators following the latest rate hike do not “call for stronger policy action at this stage.”
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Additional pressure on the euro comes from the strong dollar. As the U.S. Federal Reserve has taken a more hawkish stance and expectations for further rate hikes have increased, the dollar has become relatively more attractive. JP Morgan has lowered its euro target from 1.13 dollars to 1.10 dollars, citing the view that while growth is stabilizing, inflation remains stubbornly high and the U.S. economy is perceived as relatively resilient, supporting dollar strength.
This content was produced with the assistance of AI translation services.
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