LONDON — The euro dipped below the critical $1.04 mark on Friday, marking its weakest level since November, as thin holiday trading and renewed appetite for the U.S. dollar dragged the common currency lower ahead of Christmas.

With most major European markets winding down for the holiday season, liquidity remained light and price swings more pronounced. The EUR/USD pair traded as low as 1.0382 in early London hours, reflecting growing divergence in monetary policy expectations between the European Central Bank (ECB) and the U.S. Federal Reserve.

Analysts cited renewed investor positioning around the Fed’s more hawkish tone, following a string of stronger-than-expected U.S. economic data, as a key driver in the dollar’s outperformance. Meanwhile, the ECB’s cautious stance and softer eurozone inflation figures have raised doubts about further tightening in the euro area.

“The Fed is signaling it’s in no rush to cut rates, while the ECB may have to move sooner than expected,” said Clara Heins, FX strategist at ING. “That policy gap, combined with year-end flows, is putting considerable pressure on the euro.”

Adding to the euro’s woes, German consumer confidence unexpectedly dipped in December, suggesting a challenging start to 2025 for Europe’s largest economy. Market participants are also keeping an eye on geopolitical developments, including lingering concerns over energy supplies and sluggish industrial growth across the continent.

The dollar index, which tracks the greenback against a basket of six major currencies, rose 0.5% to 103.89—its highest since early November.

While most traders expect muted activity through the remainder of the year, several warn that low-volume sessions can produce outsized moves. “Thin liquidity is a double-edged sword,” said Marco Delaney, senior trader at BNP Paribas. “It favors dominant trends, and right now, the dollar is the clear beneficiary.”

Markets will look to next week’s U.S. core PCE data for further signals on inflation trends, though trading is expected to remain subdued into the new year.

By Staff Writer, Courtesy of Forbes | December 22, 2024 | Edited for WTFwire.com
Source: TradingView