Euro Plummets to Lowest Level Since July as Dollar Strengthens

The Euro has dropped to its lowest level since late July as the Dollar continues to climb. About 80% of the Euro's August rally is gone, with the EUR/USD pair dipping under 1.1450 before recovering to trade near that level. The move was largely driven by the strengthening US Dollar, which gained as US rate expectations kept rising.

The European Central Bank (ECB) raised its deposit rate to 2.50% on September 10, but futures traders now expect three or four more increases over the next year. Bundesbank President Nagel stated that rates may need to go high enough to slow the economy, supporting the market's expectations.

However, ECB President Lagarde and Vice-President Vujčić have both expressed caution, arguing that the market expects too much from future rate hikes. They emphasized that the ECB's response is measured, rather than simply following energy prices higher.