- Euro slides to its weakest level since June 2025 amid persistent dollar strength and monetary policy divergence.
- Weaker euro boosts export competitiveness but raises imported inflation risks for the eurozone.
- Market focus turns to ECB signals and upcoming U.S. data for near-term direction.
The euro extended its decline to the lowest since June 2025, trading down 0.3% at $1.1391, as the dollar strengthened on expectations of higher-for-longer U.S. interest rates. The single currency has fallen over 5% from its 2025 highs, pressured by a widening policy gap between the European Central Bank and the Federal Reserve.
“The euro is caught in a perfect storm of stronger U.S. growth and more dovish ECB expectations,” said a currency strategist at a major European bank. “Unless we see a significant improvement in eurozone data or a shift in Fed rhetoric, the bias remains for further weakness.”
The move comes as the eurozone’s manufacturing and services PMIs have shown mixed signals, with the bloc’s largest economy, Germany, facing contraction risks. Meanwhile, U.S. economic resilience has kept the Fed on a cautious path, with markets pricing in only gradual rate cuts later this year.
Italy’s 10-year bond yield rose 5 basis points to 3.95% on Friday, as the weaker euro added to concerns over imported inflation. ECB Chief Economist Philip Lane said on Thursday that the central bank remains data-dependent but noted that “the inflation outlook is broadly consistent with our target.”
Investors are now eyeing next week’s U.S. payrolls report and the ECB’s March meeting for cues. A break below the $1.1350 level could open the door to a test of the $1.1200 area, analysts say.
Correction: An earlier version of this article incorrectly stated the euro’s previous low as June 2024. It has been corrected to June 2025.