The euro reached 1.16 for the first time since November 2021, as investors reacted to diverging policy signals from the European Central Bank and the US Federal Reserve, as well as renewed fears of a trade war.

Recent comments by ECB officials have reinforced expectations that the central bank may soon suspend its easing cycle, opting for a wait-and-see approach to assess the economic fallout from the new US tariffs. In May, inflation in the eurozone slowed to 1.9%, while the ECB made its eighth consecutive rate cut, lowering the deposit facility rate to 2%.

On the other hand, the dollar weakened amid weaker-than-expected US inflation data and escalating trade tensions, prompting speculation that the Fed could start cutting rates as early as September.

US President Donald Trump added to market uncertainty on Wednesday, announcing his intention to send letters to major trading partners in the coming weeks outlining new unilateral tariff rates.