The euro fell to its lowest level in over five months against the dollar on Thursday, as the European Central Bank’s (ECB) recent interest rate hike led market participants to believe it could be the last of its kind. The common currency slipped below $1.066 after the ECB’s announcement and continued to decline even after European markets closed, dropping by up to 0.9% to reach $1.0632, a level not seen since March 20.

The euro’s depreciation was not confined to the dollar but was also noticeable against all other developed world currencies. Bipan Rai, CIBC’s global head of foreign exchange strategy based in Toronto, predicts that the currency could further decline to $1.05 in the upcoming weeks.

This forecast is largely predicated on the superior economic performance of the US. As the Federal Reserve contemplates additional rate hikes, Christine Lagarde, President of the ECB, suggested that Thursday’s rate increase should be “sufficient” as growth remains “slow and sluggish.”

Rai emphasized that current US data indicates a resilient real activity despite current rate settings. This resilience implies the potential for more tightening measures from the Federal Reserve or a less aggressive easing approach compared to other central banks in 2024.

Since peaking for the year in July, the euro has dropped over 5%. This decline is attributed not only to stronger growth prospects in the US but also rising commodity prices which impact Europe’s terms of trade negatively.

Brad Bechtel, Jefferies LLC’s global head of foreign exchange based in New York, noted greater demand for US assets compared to European ones. However, he pointed out that this shift has not been fully reflected in currency values yet.

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