The currency of the old continent took a hard hit this year. Unfortunately, there has been little support from local politicians or the economy.
The most active trading currency pair globally, EURUSD, slipped below $1.05
Wednesday after better-than-expected economic data from the eurozone. Despite starting the day in positive territory, the euro turned negative after the November inflation report was published.
Consumer prices rose 2.2% last month, falling short of the 2.3% consensus but exceeding October's 2.0% and September's 1.7%.
Rising inflation is not a big challenge for the European Central Bank, which aims to cut interest rates as much as possible, ideally without putting pressure on prices. With inflation again coming in below expectationsanalysts expect the ECB to maintain its course on reducing borrowing costs.
Earlier this month, ECB policymakers cut interest rates for the fourth time this year, pledging to continue the rate-cutting efforts to stimulate economic growth. However, lower interest rates weaken the euro, reducing its attractiveness for generating cash on investments.
As if that were not enough, after the Federal Reserve's interest rate decision and its guidance in 2025, the euro lost about 1.4% of its value against a green background.
The headline was not the 25-basis-point rate cut the Fed was expecting – that was already priced in. Instead, markets were distracted by the Fed's forecast for 2025. Fed Chairman Jerome Powell and his team predicted just two more rate cuts next year, disappointing investors who the hope was a more aggressive discount cycle.
Two additional 25-point cuts in 2025, assuming sustained economic growth and a strong labor market, would reduce the target range to 3.75%-4%.
Market reactions were swift: the US dollar index roseGold prices fell 1% from $2,645 to $2,610 an ounce, while Wall Street's major indexes — the S&P 500, Dow Jones, and Nasdaq Composite — each fell about 0.5%.
