The euro extended its decline for a third consecutive session on Thursday, sinking to two-week lows against the U.S. dollar as monetary policy divergence between the Federal Reserve and European Central Bank continued to weigh on the common currency. The widening interest rate gap has become increasingly apparent, with markets pricing in near-certain ECB rate cuts in June while expecting the Fed to maintain its restrictive stance through mid-year.
The single currency’s weakness reflects fundamental pressures from both sides of the Atlantic. While resilient U.S. economic data supports the dollar, dovish signals from ECB officials – including President Lagarde’s recent remarks about being “data-dependent, not Fed-dependent” – have reinforced expectations for European monetary easing. This policy divergence has pushed the euro through key technical support levels, with momentum indicators suggesting further downside potential.
Market participants are now closely monitoring upcoming eurozone inflation data for confirmation of the ECB’s June policy path, while also awaiting next week’s U.S. jobs report for clues on Fed timing. The euro’s technical breakdown suggests traders may test the psychological 1.07 level unless either central bank signals a meaningful shift in policy expectations. With positioning data showing growing euro shorts, the currency remains vulnerable to further selling pressure in the near term.
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