The euro dropped by 0.2% to trade at $1.1405 in London, hitting its lowest point since August by 9:35 a.m. on June 23, 2026. This decline was triggered by recent data indicating a contraction in German private sector and French business activity for June, coupled with dovish comments from European Central Bank President Christine Lagarde. Her remarks have prompted traders to scale back their bets on further interest rate increases in the Eurozone.
Options markets now reflect the most bearish sentiment towards the euro in over three months. This downturn highlights a growing divergence in monetary policy expectations between the ECB and the US Federal Reserve. While the ECB appears more cautious regarding future rate hikes amidst weakening economic indicators and falling oil prices below $80 a barrel, the Fed, under Chair Kevin Warsh, is expected to continue its tightening path.
This policy divergence is a key factor driving the euro's downward pressure and the dollar's strengthening. The gap between German and US two-year bond yields has widened to around 163 basis points, the largest since September 2025, up from about 113 basis points two months prior. Money markets now suggest Eurozone rates will end the year about 31 basis points higher than current levels, with the next potential hike in October, a slight reduction from the 35 basis points priced in before Lagarde's recent comments.
