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Euro’s decline likely due to growing speculation of ECB rate pause, dollar stable ahead of Powell.

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The euro currency reached its lowest level since mid-June due to growing speculation that the European Central Bank (ECB) may halt its rate hikes. According to Reuters, eight sources with direct knowledge of the discussion revealed that ECB policymakers are concerned about weakening growth prospects, leading to a debate about pausing the rate hikes. This report caused the euro to fall to its lowest point since mid-June, reaching around $1.0766. Meanwhile, the US dollar remained strong ahead of a speech by Federal Reserve Chair Jerome Powell, with the dollar index rising to 104.25, its highest level since June 7.

The dollar’s strength and the euro’s weakness highlight the different monetary policies of the ECB and the Federal Reserve. While the ECB is considering a pause in rate hikes due to concerns about slowing growth, Powell is expected to maintain the possibility of future rate hikes. This divergence in monetary policy is contributing to the strengthening of the dollar. Additionally, both the euro and the pound have suffered this week due to weak business activity data, leading investors to reduce their bets on further rate hikes in both the euro area and Britain.

The market reactions to these monetary policy perspectives are evident in the currency movements. The dollar index is on track for its sixth consecutive week of gains, supported by signs of resilience in the US economy. On the other hand, the euro and the pound have experienced declines this week, with the euro reaching its lowest point in months. The future trajectory of the exchange rates will largely depend on how the ECB and the Federal Reserve respond to the evolving economic conditions.

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