The dollar stood near this year’s high versus the euro on Wednesday and was poised for the largest monthly rise against it in 14 months, driven by US growth and increasing US interest rates, in stark contrast to the energy and debt concerns prevalent in Europe. On Tuesday, the euro fell to its lowest level since May 2025, reaching $1.1312, and it was trading close to $1.1339 in Asia on Wednesday. The euro is currently evaluating its support level near 178 yen. The dollar has appreciated by nearly 2.5% against the euro in September, positioning itself for a third consecutive quarterly increase. The stronger greenback has also pushed the Australian dollar below 70 cents for the first time since early August, with the Aussie slipping to a nine-week low of $0.6959 after inflation data came in a fraction under forecasts. “The US economy is running hot, Europe is losing the global AI race, and energy supplies and French politics remain big concerns for the euro,” said Brent Donnelly.
Earlier this month, benchmark European petrol prices surged to their highest levels since 2022. French markets are experiencing pressure due to debt concerns and political gridlock as the presidential election approaches next year. The spread with German yields has widened beyond 115 basis points, reaching its highest level since 2012. A skew in options prices has tipped sharply in recent sessions to indicate that traders are increasingly inclined to purchase protection against further declines in the euro. However, Donnelly suggests that the dollar likely requires robust US data to gain traction moving forward. The dollar reached a 16-1/2-month high against the Swiss franc on Tuesday at 0.8358 francs. The franc has experienced a decline, partly due to investors seeking low-yielding alternatives to the yen, prompting them to sell in pursuit of carry opportunities elsewhere.
The yen has lost its appeal as a short against the dollar after US-Japan yen buying in July and August. This activity has been accompanied by cautions against challenging their determination, alongside an acceleration in the pace of Japanese rate hikes. The dollar has experienced a decline of 2% against the yen in September and nearly 3.8% throughout the third quarter, reaching a low of approximately 156.38 during Asian trading hours. The Fed’s preferred inflation yardstick, US core PCE, is due out later on Wednesday; however, the market is primarily focused on Friday’s US jobs report. A strong report could reinforce expectations that US interest rates are on the rise.
Some of those expectations were dampened overnight when influential New York Fed President John Williams stated there is “no need for urgency” in raising rates. Two-year Treasury yields decreased by approximately 3.5 basis points, while the pricing for a rate hike in Fed funds futures for the upcoming month was adjusted down to 50% from 71%. The New Zealand dollar, which reached its lowest point since last November on Tuesday, was fixed at $0.5645. Sterling reached a three-month low on Tuesday and was last observed at $1.3230. The yuan is poised to achieve its seventh consecutive quarterly increase against the dollar in the last trading session prior to China’s holidays from October 1 to 7.
