Monthly Wrap: EUR – Euro drops to multi-month lows amid ECB rate cut speculation

Philip McHugh December 8th 2023 - < 1 minute read

Key takeaways: 

  • Euro weakens as Eurozone inflation approaches 2% target 
  • Markets bet on ECB rate cuts as early as spring 
  • EUR monthly lows: £0.85, $1.06, AU$1.62, NZ$1.74, C$1.46 
  • EUR monthly highs: £0.87, $1.10, AU$1.68, NZ$1.82, C$1.50 

After finding some gains through the first part of November, the euro then tumbled at the end of the month, striking multi-month lows against some peers, as markets bet on interest rate cuts from the European Central Bank (ECB). 

The common currency’s initial upside came amid strong data from Germany – the Eurozone’s largest economy. The influential ZEW economic sentiment index smashed forecasts in November, rising to its highest level since April. 

Meanwhile, the euro’s strong negative correlation with the US dollar also boosted EUR, as USD plunged. 

However, the single currency faced heavy selling pressure towards the end of the month as weaker Eurozone data raised fears of a winter recession in the bloc. 

The Eurozone’s latest consumer price index then missed forecasts. Inflation cooled from 2.9% to 2.4% in November, versus the expected 2.7%. 

With the bloc’s economy struggling and inflation nearing the ECB’s 2% target, markets ramped up bets on a rate cut in the first half of 2024. This saw the euro slump to multi-month lows in late November and early December. 

The focus looking ahead is the ECB’s interest rate decision in the middle of December. If policymakers at the bank fail to convince markets that rate cut bets are premature then we could see the single currency crumble. 

The latest Eurozone PMI results could also dent EUR exchange rates. Economists expect business activity in the bloc to have contracted for the seventh consecutive month in December. 

Overall, the euro could end 2023 on a sour note, with the single currency potentially plunging to new multi-month lows. 

Written by
Philip McHugh

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