The euro began the week under slight pressure against the dollar as investors anticipate further interest rate cuts by the European Central Bank (ECB). With inflation in the Eurozone now under control below the 2% target, coupled with Germany’s sluggish economy it reinforced expectations of further stimulus. Furthermore, French political uncertainty and worsening public finances are also weighing on the euro. As a result, government bond yields across Europe have been under pressure.

Conversely, the dollar remains strong buoyed by high inflation and a resilient labour market leading the Fed to adopt a less dovish narrative.

Looking forward, the ECB interest rate decision it is not the only factor weighing on the euro. Investors are also closely monitoring the ZEW Economic Sentiment Index, which is set to be released tomorrow. Positive data may cap the euro's losses, but overall uncertainty surrounding the Eurozone’s economic future is likely to prevail, continuing to put pressure on the euro.