Euro Hits Three-Month Low Against Dollar Amid Tightening Fed Expectations

The euro has fallen to its lowest value against the US dollar in three months due to rising energy prices and expectations of tighter monetary policy from the Federal Reserve.

Rising oil prices have complicated efforts to combat inflation, leading some central banks around the world to accelerate their monetary tightening processes. The Fed's decision to hike rates again by the end of the year is seen as likely, with a 73% probability of a 25-basis-point increase in October.

Piotr Matys, senior foreign exchange analyst at In Touch Capital Markets, noted that the US and European bond markets have diverged due to country-specific developments and volatility in oil prices. He also stated that the euro could be sensitive to upcoming US data releases, including non-farm payrolls on Friday.

Kit Juckes, head of foreign exchange strategy at Societe Generale, believes a gradual decline in the euro/dollar exchange rate is likely as long as energy prices remain high. He noted that elevated oil prices are a powerful force that cannot be talked away by verbal campaigns to hold down the dollar.