Euro Slides Below 1.15 After Fed Hike to 4.00%
EUR/USD hit seven-week lows as US yields near 5.00%. CIBC forecasts a rise to 1.20 by June 2027.
Key points
- The euro dropped below 1.1500 after the Fed raised rates to 4.00% in a unanimous vote.
- US 10-year yields reached 5.00%, a three-year high, strengthening the dollar against the euro.
- CIBC forecasts the euro will reach 1.20 by June 2027 as the Fed begins cutting rates.
The euro fell to seven-week lows below 1.1500 against the dollar. This drop followed the Federal Reserve’s decision to raise rates by 25 basis points.
US 10-year yields hovered near 5.00%, their highest level in three years. These elevated yields provide strong support for the US dollar in foreign exchange markets.
Fed Signals Hawkish Stance
The Fed voted 12-0 to increase rates to 4.00%. Chair Warsh stated the economy is robust and close to full employment.
Most committee members expect another rate hike by the end of this year. This outlook reinforces the dollar's strength against the euro and other G10 currencies.
2027 Rate Cut Expectations
CIBC predicts the euro will reach 1.20 by June 2027. They expect the Fed to cut rates by two quarter points next year.
Credit Agricole expects the pair to retreat to 1.13 by the end of 2026. They see only a slight gain to 1.14 by mid-2027.
Geopolitical Risks Impact Outlook
Elevated energy prices continue to exert upward pressure on global bond yields. This factor complicates the monetary policy path for central banks worldwide.
Credit Agricole notes the dollar's safe-haven appeal depends on geopolitical stability. Investors are watching the US-China summit and Middle East developments closely.
Nordea questions if this is a one-time hike or the start of a new cycle. History suggests rate hikes rarely arrive alone in the current century.
