The euro slipped to a trough on Wednesday, trading €1.07 per dollar, as declining oil prices eased pressure on the European Central Bank’s policy stance. Lower oil prices trimmed inflationary inputs, prompting traders to abandon bets on further rate hikes. Market sentiment shifted from optimism about a tightening cycle to caution amid a slowing euro‑zone economy. After data showed German industry output falling 1.2% YoY.

Analysts note that the oil slump, driven by weaker Chinese demand and OPEC+ output discipline, removed a key driver of headline CPI, which had been hovering near the ECB’s 2% target. With energy costs retreating, the central bank’s most hawkish members face less justification for tightening, widening the spread between euro‑zone bonds and U.S. Treasuries in the coming months.

The euro’s slide intensifies the debate over the timing of the ECB’s next policy meeting. If inflation continues to dip, policymakers may pause or even cut rates, a scenario that could further weaken the currency against the dollar and the pound. Investors will watch upcoming PMI data for clues on whether the economic slowdown is deepening significantly.