Key Takeaways:

• The euro has fallen to its weakest level against the dollar since 2022, reaching $1.0306, due to concerns about Europe’s economy and expectations of interest rate cuts.
• The pound has also declined, reaching an eight-month low of $1.2389, amid worries about weak UK growth and potential interest rate cuts.
• Weak growth, US trade tariffs, and political instability are weighing on the euro, while the pound is being dragged down by weak UK GDP and recession fears.
• Many strategists predict the euro will slide to parity with the dollar or below in 2025, citing ongoing economic challenges in Europe.
• The euro has hit a two-year low against the dollar, plummeting to $1.0306, as concerns about Europe’s economic outlook continue to mount.

The euro has been on a downward spiral since late September, with an 8% decline, as investors worry about the impact of US trade tariffs, weak growth, and political instability on the bloc’s export-orientated economies. The European Central Bank’s expected interest rate cuts have also contributed to the euro’s decline, as investors anticipate a more aggressive easing of monetary policy compared to the Federal Reserve.

The pound has also suffered, sliding to an eight-month low of $1.2389, as weak UK growth and recession fears take hold. Britain’s flat GDP in the third quarter of 2024 and the Bank of England’s prediction of no growth in the fourth quarter have reinforced the case for deeper interest-rate cuts, putting pressure on the pound. According to Jane Foley, head of FX strategy at Rabobank, “weak growth is a common issue for Germany, France, and the UK,” with the latter facing increased recession fears due to soft GDP releases.

The energy crisis in Europe has also been a major factor in the euro’s decline, with the halt of Russian gas flows to Europe via Ukraine exacerbating supply pressures. However, European Central Bank President Christine Lagarde remains optimistic, stating that the 2% inflation target is still within sight, despite consumer-price growth decelerating over the course of last year. As the euro continues to slide, many strategists predict it will reach parity with the dollar or even fall below it in 2025, citing ongoing economic challenges in Europe.