Key facts
- The dollar was set for its largest monthly rise against the euro in 14 months.
- The euro fell to its lowest level since May 2025 against the dollar.
- The dollar reached a 16-1/2-month high against the Swiss franc.
- US core PCE inflation data is due later on Wednesday, with focus on Friday's US jobs report.
- New York Fed President John Williams stated there is 'no need for urgency' in raising rates.
The dollar was poised for its largest monthly gain against the euro in 14 months, driven by the strength of the US economy and rising interest rates, in contrast to concerns over energy supplies and debt in Europe. The euro dipped to its lowest level since May 2025 against the dollar, trading near $1.1312. Through September, the dollar had risen nearly 2.5% on the euro. The strengthening greenback also pushed the Australian dollar below 70 cents for the first time since early August.
Analysts cited the robust US economy, Europe's perceived lag in the AI race, and ongoing concerns about energy supplies and French politics as factors weighing on the euro. French markets have faced pressure from debt and political gridlock, with the spread between French and German yields widening significantly. Options prices have shifted to favor protection against further euro declines.
The dollar also reached a 16-1/2-month high against the Swiss franc. The yen has become less favored as a short against the dollar following intervention and a pickup in Japanese rate hikes, with the dollar falling 1.5% on the yen in September.
Market focus is on upcoming US inflation data and Friday's jobs report, which could reinforce expectations of further US interest rate hikes. However, New York Fed President John Williams indicated there was "no need for urgency" in raising rates, leading to a slight pullback in Treasury yields and rate hike expectations. Australian inflation figures are also anticipated, with the Reserve Bank of Australia having recently raised rates.