Euro Sinks to Two-Month Low as Traders Bet on Further Weakness

The euro has hit a two-month low against the dollar as options traders bet on further weakness. This move comes after the Federal Reserve's interest-rate hike, which is eroding the policy-divergence theme that supported the euro through much of the summer.

Options gauges show sentiment turning increasingly bearish, with positioning into year-end near levels last seen in mid-August. The euro weakened by 0.2% to $1.1426, heading for a third daily drop.

Persistently high energy prices have added another headwind by weighing on the euro area's growth outlook. This has led ECB Governing Council member Joachim Nagel to suggest that officials may have to raise interest rates to levels that restrain economic growth if elevated energy prices persist.