The euro fell below $1.085, retreating from its nearly five-month high of $1.09547 reached on March 18, after ECB President Christine Lagarde warned of a slowdown in growth, but played down inflation risks if the EU retaliated against US tariffs. Speaking to European lawmakers on Thursday, she warned that a 25% US tariff on European imports could reduce eurozone growth by 0.3 percentage points in the first year, with a counter-tariff worsening the impact to 0.5 percentage points. The greatest impact would occur in the first year, with persistent effects on output, although inflationary pressures would ease over time, indicating that the ECB would not respond with a rate hike.

On the other hand, the ECB's Ms. de Galhau stressed that the ECB had room for maneuver to further reduce borrowing costs, as inflation is less of a concern in the Eurozone than in the US. Traders have recently lowered their expectations for ECB rate cuts, with only two expected this year. The US Federal Reserve, meanwhile, held rates steady and reaffirmed its intention to make two cuts this year.

For its part, the Bank of England maintained its benchmark interest rate at 4.5% and signalled a gradual and cautious approach to future cuts. Despite notable progress on disinflation in recent months, uncertainty surrounding international trade policy intensified following the US announcement of tariffs, prompting reactions from some governments and potentially increasing price pressures. In addition, economic growth data continued to show signs of weakness, as Prime Minister Keir Starmer struggled to restore consumer and business confidence.