The euro held near $1.12, stabilizing after touching its weakest level in a year and a half, as investors weighed comments from European Central Bank President Christine Lagarde and looked ahead to US inflation data for clearer signals on the Federal Reserve’s policy outlook.
Lagarde noted that elevated inflation in the euro area, largely driven by high energy prices, has not yet clearly spread to the broader economy. Speaking at a CNN event in Bangkok, she said policymakers are closely watching for indirect effects and possible second-round inflationary pressures, and emphasized the need for caution even though there are, so far, no definitive signs of such dynamics taking hold.
At the same time, inflation continues to come in above expectations, while tensions in the US-Iran conflict show little sign of easing. In response, markets are increasingly pricing in the likelihood of another ECB rate hike in December.
Despite its recent rebound, the euro remains under strain from soaring energy costs, stubbornly high inflation and rising borrowing costs, as well as mounting fiscal worries in highly indebted member states, particularly France.