(Bloomberg) -- The euro is on course for its longest weekly slide against the dollar in eight months, pressured by growing expectations that the European Central Bank may deliver a half-point interest-rate cut in December.
The common currency is poised for its fourth straight week of losses, a decline last seen in February, taking it down to around $1.08. Signs of economic weakness in the euro zone are boosting the chances of the ECB’s policy easing becoming more aggressive, just as the Federal Reserve may slow the pace of its rate cuts.
The upcoming US presidential election is also weighing on the euro, given the risk Donald Trump wins and imposes high trade tariffs on European countries. That scenario would boost the greenback, which is already having its best month in two years, and lead the euro to drop toward parity, according to Goldman Sachs Group Inc.
“Relative rates are going to be favorable for the dollar relative to the euro, regardless of who’s in the White House,” Michael Metcalfe, head of macro strategy at State Street Global Markets, said in an interview with Bloomberg TV. “Relative monetary policy is what’s in the driving seat.”
Traders are betting on a 40% possibility for a 50 basis-point ECB cut at its next meeting in December, a risk that was not at all priced just 10 days ago. Meanwhile the chances of another half-point cut by the Fed have faded.
Options markets also signal more pain for the euro. Demand to protect against a fall in the euro is around its highest in more than three months and measures of volatility are also elevated.
--With assistance from Anna Edwards and James Hirai.
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