The euro has fallen to a two-month low against the dollar, reaching $1.1409, extending a three-day losing streak following the Federal Reserve's recent interest rate increase. This decline is largely attributed to options traders intensifying their bearish positions on further euro weakness, with such positioning now close to mid-August levels as markets anticipate additional Fed tightening.
Contributing to the euro's downward pressure are persistently high energy prices and political instability within France and Germany. After the Fed meeting, approximately 60% of euro-bearish exposure was positioned, a significant increase from an almost even split observed after the European Central Bank's (ECB) own rate hike.
ECB Governing Council member Joachim Nagel has suggested that further rate increases might be necessary if energy costs continue to rise. However, analysts such as Elias Haddad from Brown Brothers Harriman argue that the US growth advantage continues to support the dollar. Deutsche Bank, meanwhile, forecasts the euro will likely remain within a range, citing resilient global growth and potential downside risks for the dollar.
