Euro Holds Near Recent Low Despite Stronger Inflation

The euro remained below $1.13, close to its lowest level since May 2025, despite stronger-than-expected Eurozone inflation data. Annual inflation accelerated to 3.8% last month, its highest level since September 2023 and well above the ECB’s 2% target, driven largely by higher fuel prices. Despite the renewed inflationary pressure, the euro remains under pressure as markets expect the ECB to tighten monetary policy more gradually than the Federal Reserve. Further ECB rate hikes are priced in over the coming year, with the next move potentially coming as early as December. ECB Executive Board member Isabel Schnabel said Wednesday that the coming months would be important for assessing the impact of the energy shock and determining how high interest rates need to rise. Her comments suggest a cautious, wait-and-see approach as the US-Iran conflict enters its eighth month. The eurozone’s weak outlook could also limit aggressive ECB tightening, with GDP seen growing just 0.9% this year.