The euro has dropped to a two-month low against the dollar, settling at $1.1409, extending its losses for a third consecutive day. This decline follows the Federal Reserve's recent interest-rate increase, which has spurred options traders to escalate bearish bets on the euro's continued weakness. The positioning of these bets is now close to levels last seen in mid-August, indicating market expectations of further Fed tightening.
Contributing to the euro's downside pressure are persistently high energy prices and political uncertainties within key eurozone countries like France and Germany. After the Federal Reserve meeting, approximately 60% of euro-bearish exposure has been established in the market, a significant increase from near-even splits observed after the European Central Bank's rate hike. Joachim Nagel, a member of the ECB Governing Council, has suggested that further rate increases might be necessary if elevated energy costs persist.
Analysts are also weighing in on the euro's prospects. Elias Haddad of Brown Brothers Harriman posits that the U.S. growth advantage continues to bolster the dollar. Meanwhile, Deutsche Bank anticipates that the euro will likely remain range-bound, supported by resilient global growth and potential tail risks for the dollar.
