2026.07.2807:31:39UTC+00Euro Drops to One-Month Low as Fed Rate Outlook Supports Dollar

The euro slipped below $1.14, hitting its weakest level in a month, as investors closely followed developments in the Middle East and the dollar drew support from lingering expectations that the Federal Reserve could still raise interest rates on Wednesday. A pause in US strikes on Iran pushed oil prices lower and eased some inflation concerns, but US Treasury yields fell only modestly, underscoring ongoing caution.

In Europe, money markets trimmed expectations for further ECB tightening only slightly and still imply nearly two additional 25 bp rate hikes by March 2027. ECB policymaker Peter Kazimir said at least one more increase will likely be needed to rein in inflation, and noted that a weaker economic outlook could even justify more tightening than markets currently anticipate. At the same time, Chief Economist Philip Lane described the current inflation shock as moderate, a view that he said supports further policy tightening. Investors now await fresh inflation data later this week for clearer signals on the policy outlook.