The euro rate keeps on steadily declining since the beginning of this week. The euro to US dollar rate is hovering around a two-week bottom of 1.1355 and may even touch the 1.13 handle. The rate downturn accelerated on Thursday driven by a new European Commission outlook.
The European Commission downgraded its GDP growth forecast for the Eurozone from 1.9% to 1.3%. Notably, the regulator revised its forecasts for almost all countries in the region with Germany and France affected the most.
The ECB contributed to the situation as well. Its economic report brought some pessimism to the market. Specifically, the regulator frankly pointed out that global economic growth is slowing down and risks of further deterioration are getting stronger. Moreover, the Central Bank also reported that core inflation is likely to continue going down in the coming months citing cheaper oil among the reasons.
In addition, today, 5-year inflation swaps reached their lowest level since November 2016. The tool is often regarded as an indicator of expectations for rates. With such dynamics, investors are less likely to believe that the ECB may raise the rate by the end of this year.
In the circumstances, the euro downtrend is not a surprise, especially amid the strong US dollar rate. Taking the combination of the two powerful pressure factors, one of which is fundamental, both short and medium-term outlook for the pair is getting worse, which was quite optimistic until now amid more flexible Fed position.