The euro edged lower against the US dollar on Monday as diverging bond yields between the eurozone and the United States continued to strengthen the greenback.
Recent geopolitical developments contributed to lower European bond yields after progress in US-Iran negotiations pushed oil prices down and eased concerns over energy-driven inflation.
In contrast, US Treasury yields remained supported by expectations that the Federal Reserve could lean toward a hawkish stance in the coming months, widening the yield differential in favour of the dollar.
Nevertheless, downside pressure on the euro could remain limited as traders are still anticipating further policy tightening from the European Central Bank. ECB Chief Economist Philip Lane recently argued that the eurozone economy may now be capable of tolerating higher interest rates without significantly harming growth prospects. ECB policymaker Pierre Wunsch further reinforced the hawkish tilt.
Looking ahead, traders will closely monitor this week’s economic releases. PMI surveys due on Tuesday will provide fresh insight into business activity across the euro area. Positive surprises could benefit eurozone yields, while signs of economic slowdown could place additional pressure on the currency. In the US, Thursday’s inflation report could influence expectations surrounding Federal Reserve policy and broader currency market sentiment.
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