Dollar heads for strongest monthly gain against euro in 14 months

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Dollar's strongest monthly gain

Highlights

The euro drops to $1.1312, approaching a 14-month low, as the dollar posts its strongest monthly gain against the euro since July 2023 due to robust U.S. growth and European political and energy concerns.
Benchmark European gas prices hit highs not seen since 2022, while the French-German yield spread widens beyond 115 basis points amid debt and political tensions ahead of France’s 2025 presidential election.
The dollar reaches a 16-1/2-month high of 0.8358 Swiss francs and, despite U.S.-Japan interventions, falls 1.5% against the yen in September as markets await key U.S. inflation and jobs data.

Dollar strength builds on U.S.-Europe divergence

As reported by Reuters, the euro falls to its lowest level since May 2025 at $1.1312 overnight and trades near $1.1339 in Asia, while the dollar remains on course for its largest monthly rise against the single currency in 14 months.

The move reflects stronger U.S. growth and rising U.S. rate expectations, set against concerns about Europe’s energy outlook, debt pressures and political instability. Brent Donnelly, president of foreign exchange trading at Spectra Markets, says the U.S. economy is running hot while Europe is losing the global AI race, with energy supplies and French politics remaining major concerns for the euro.

Benchmark European gas prices spike earlier this month to their highest since 2022. French markets also remain under pressure from debt concerns and political gridlock before next year’s presidential election, with the spread over German yields widening beyond 115 basis points, its widest since 2012.

The skew in options pricing also shifts sharply in favor of protection against further euro declines, although Donnelly says the dollar likely needs strong U.S. data to extend gains much further from current levels.

Broader currency market impact centers on rates and risk appetite

The dollar also reaches a 16-1/2-month high on the Swiss franc at 0.8358 francs overnight. The franc weakens partly because investors seeking carry trades look for low-yielding alternatives to selling the yen.

The yen has become less attractive as a funding currency against the dollar after U.S.-Japan yen buying in July and August, official warnings against testing authorities’ resolve, and a faster pace of Japanese rate hikes. Even so, the dollar falls 1.5% against the yen during September.

Markets are watching the Federal Reserve’s preferred inflation gauge, core PCE, due later on Wednesday, but attention is centered on Friday’s U.S. jobs report. A strong payrolls reading could reinforce expectations that U.S. interest rates are rising, although some of those expectations ease after New York Fed President John Williams says there is no need for urgency in raising rates, pushing two-year Treasury yields down about 3.5 basis points and cutting futures-implied odds of a rate hike next month to 50% from 71%.

In Asia-Pacific trading, the Australian dollar slips below 70 U.S. cents for the first time since early August before steadying near $0.6986. Australian inflation data due later on Wednesday could support the currency, though Commonwealth Bank of Australia’s head of foreign exchange, Joe Capurso, says markets already price in another Reserve Bank of Australia hike, possibly as soon as November, and he still expects the next major move in AUD/USD to be lower. The New Zealand dollar, after hitting its weakest level since last November overnight, holds near $0.5638.

In our earlier article on prediction-market bets ahead of the U.S. jobs report, we noted that traders on Kalshi and Polymarket were pricing in a solid September payrolls print, with odds favoring results above Wall Street estimates. We also highlighted that August hiring rebounded to 162,000, reinforcing expectations for firmer labor data that could keep the Fed leaning hawkish on rates.

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