What are the main factors that could keep the euro under pressure for some time?

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The euro continued to weaken against other major currencies as the IMF downgraded its economic growth outlook for the euro area.

Over the past month, the single currency has fallen more than 3% against the US dollar, falling below 1.08, its lowest level since August 2.

The euro also depreciated by 0.77%, 1.47% and 1.54% against the British pound, Swiss franc and Australian dollar, respectively, during the same period.

Headline inflation is below target, continued economic weakness and political uncertainty are all contributing to the euro's weakness. The upcoming US election usually plays an important role in driving trends in the currency market.

Market sentiment is unstable due to US presidential election

Global market trends are heavily influenced by the US presidential election on November 5th, with betting markets favoring Donald Trump's victory.

Reflecting a similar trend in 2016, the U.S. dollar strengthened during President Trump's term, largely due to the “trade war” between the United States and China.

This time, the situation could get even worse, with President Trump vowing to impose tariffs on Europe and other countries, raising concerns about a second trade war.

“European economies are already feeling the effects of 10% tariffs from the US and a potential slowdown in China, and face increased recession risks,” said Dilin Wu, research strategist at Pepperstone.

If that happens, the European Central Bank (ECB) could be forced to cut interest rates deeper to keep the euro low and exports competitive.

Analysts from Deutsche Bank, JPMorgan Private Bank and ING Group have all warned of the risk of the euro falling to parity with the U.S. dollar if Trump is re-elected.

Economists say President Trump's proposed 60% tariffs on Chinese goods and 10% tariffs on imports from other countries will increase price pressure in the United States and prompt the Federal Reserve to raise interest rates again. That's what I think.

These expectations have boosted the strength of the US dollar, further supported by the country's resilient economic indicators.

Lower inflation rates in the euro area led to interest rate cuts

By contrast, the eurozone's annual inflation rate fell below target at 1.8% in September, leading the ECB to cut interest rates for the third time this year.

At the annual meetings of the International Monetary Fund (IMF) and World Bank on Tuesday, ECB President Christine Lagarde reiterated that disinflation remains on track, but the pace remains dependent on future economic data. he pointed out.

But his meeting-by-meeting approach was largely dismissed after the IMF cut its growth forecast for the eurozone, predicting growth of 1.2% next year (down 0.3% from its July forecast).

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Weakness in manufacturing in Germany and Italy is seen as the biggest factor in the slowdown.

Recovery in world government bond yields

Global government bond yields, particularly U.S. bond yields, rose in October on the back of better-than-expected employment data.

Bond traders are now expecting the Federal Reserve to slow its rate of rate cuts as the U.S. economy appears to be headed for a “soft landing.”

Interest-rate-sensitive two-year U.S. Treasury yields have risen 0.34% since the Federal Reserve cut interest rates by 0.5% in September, supporting the dollar and putting pressure on other currencies.

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The euro has been one of the weakest currencies in the G10 group over the past month, as yields on eurozone government bonds have fallen sharply. Meanwhile, the yield on the 10-year U.S. Treasury rose 0.47% to 4.21%, the highest level in three months.

In contrast, major euro area government bond yields rose only modestly, with Germany, France, Spain and Italy's 10-year bond yields rising by 0.11%, 0.09%, 0.04% and 0.01% respectively.

This reflects much weaker economic growth prospects for these major European countries, putting downward pressure on the single currency.