Euro Slumps to Three-Month Low on Lagarde's Inflation Warning

The euro slipped to a three-month low on Thursday as investors weighed the comments from European Central Bank (ECB) President Christine Lagarde. The currency weakened towards $1.135, its lowest level since June 26.

Lagarde said that the inflation outlook for 2027 and 2028 is now higher than policymakers expected a few months ago, mainly due to higher energy prices. However, she noted there is no evidence yet of energy costs feeding into higher wages.

She added that while the shock is too significant to ignore, a measured policy response remains appropriate to keep inflation under control. Money markets are pricing in roughly 100 basis points of ECB rate hikes by the end of 2027.

Investors now await key eurozone inflation data due later this week for further clues on the ECB's monetary policy outlook.