Euro Slides as Dollar Strength Combines with Trade Risks and Inflation Fears

The euro has been trading below $1.14 for some time now, coming close to its one-year low reached in June. This is due to investors assessing the European Central Bank's policy outlook and recent PMI data, while the dollar remains supported by Middle East risks and new US tariffs.

The ECB kept interest rates unchanged as expected but signaled that a September rate hike is becoming increasingly likely. Several policymakers, including Bundesbank President Joachim Nagel, have warned that inflation risks remain elevated and further rate increases may be needed to combat these concerns.

Rising energy prices, with oil nearing $100 per barrel and natural gas prices surging amid the US-Iran conflict, have reinforced inflation expectations and paved the way for further tightening after the summer. This is a pressing concern for the eurozone, as it tries to balance economic growth with inflation control.