FX market news

Since early September, the dollar has reversed the depreciation seen over the summer. The dollar index has risen from a four-month low of 98.70 to an 18-month high above 102.5, ending September up nearly 2%, its best month since June (see more). EUR/USD held around 1.16 following the ECB meeting, but has since fallen by more than four cents to a 17-month low near 1.1150 in early October (see more). It is currently trading at around 1.12 (see more).

• Fed: On September 16, the Fed raised rates by 25 basis points in a unanimous decision. The Fed’s own projections point to one more rate hike in 2026. Following the decision, the dollar index moved above 100 and the dollar strengthened against all G10 currencies (see more). The yield on the 10-year US Treasury rose above 5% for the first time since 2007.
• ECB: The ECB raised rates to 2.50% on September 10, a level it considers neutral, and revised its inflation forecasts upward (2.5% in 2027). This helped EUR/USD hold around 1.16 (see more). However, that support has not been enough to offset a more hawkish Fed, the energy shock and renewed fiscal concerns over France. Eurozone inflation rose to 3.8% in September.
• EUR/USD’s recent decline: since late September, the decline has accelerated, with the euro itself becoming the main driver. The pair broke below its year-to-date low of 1.1325 on September 29 (see more). On October 1, it fell below 1.13 after France’s budget plan failed to reassure markets and the French sovereign spread approached 150 basis points, its widest since 2012 (see more). Contagion to peripheral markets and a flight to safe-haven assets (German Bunds and the Swiss franc) pushed the euro below 1.12, despite weak US employment data for September. However, the dollar rally is starting to show signs of losing steam (see more).