Euro expands losses to five-week trough against US dollar

The euro declined in European trading on Friday against a basket of global currencies, extending its losses for a fifth consecutive session against the US dollar and hitting its weakest level in five weeks. The single currency is now on track for its biggest weekly loss since March, as investors continue favoring the US dollar as the best available investment, particularly amid growing expectations that the Federal Reserve could raise interest rates this year in an effort to contain mounting inflationary pressures in the United States.

This week also saw markets increase pricing for a potential European rate hike in June, while traders continue waiting for additional economic data from the eurozone to reassess those expectations.

Price overview

• EUR/USD today: The euro fell 0.2% against the dollar to $1.1646, its lowest level since April 8, after opening at $1.1669 and touching an intraday high of $1.1673.

• The euro ended Thursday down 0.35% against the dollar, marking its fourth consecutive daily loss following another sharp rise in US Treasury yields.

Weekly performance

Over the course of this week’s trading, which officially concludes with Friday’s settlement, the single European currency has fallen around 1.2% against the US dollar so far. The euro is now on track for its first weekly loss in the past three weeks and its biggest weekly decline since March.

US dollar

The US dollar index rose 0.25% on Friday, extending gains for a fifth straight session and hitting its highest level in five weeks, reflecting continued broad strength in the US currency against a basket of global currencies.

The dollar received additional support from rising US Treasury yields as investors increased bets that the Federal Reserve will raise interest rates at least once this year.

US data released this week showed consumer prices in April rose at the fastest pace in three years, while producer prices recorded their biggest increase in four years, highlighting renewed inflationary pressure on Federal Reserve policymakers.

According to the CME FedWatch Tool, markets are currently pricing in a 45% probability of a Federal Reserve rate hike in December, compared with just over 16% a week ago.

European interest rates

• With global oil prices rising this week, money markets increased pricing for a 25-basis-point European Central Bank rate hike in June from 45% to 50%.

• Investors are now awaiting additional eurozone data on inflation, unemployment, and wages in order to reassess those expectations further.