The European currency fell below $1.13 for the first time since May 2025 against the dollar, which has been in ascendance for the past couple of months, thanks in part to the largest quarterly rise in Treasury yields since 1994.
The euro also sank against the yen, the Swiss franc and barely held in positive territory against the pound, as yields on French debt, which has been hounded by worries about France’s shaky finances, surged to another 14-year high. And even benchmark German debt came under fire.
The euro fell 0.3% to $1.1299. It declined nearly 2.5% in September, marking its largest monthly decline since July 2025.
Europe is facing a range of political uncertainties as well, with a hotly contested French election next year, as well as increasing pressure on Germany’s chancellor after a series of gains by the far-right AfD party in regional elections.
Data on Wednesday showed US inflation rose less than expected in August, along with downward revisions to July’s figure, which lowered expectations for a Federal Reserve rate hike this month. But a surge in euro zone inflation underscored the threat that higher energy prices continue to pose to the global economy.
“This growth risk has been hanging over the euro,” Rabobank head of FX strategy Jane Foley said. “And despite the fact that the ECB was one of the first central banks in the G10 to hike interest rates, despite the fact that it’s expected to go again, the euro hasn’t been able to get traction.””It’s been bogged down by the fact that positions were very long and by this concern about (Europe) being an energy importer and then of course, at the margins certainly going into next year, you’ve got these political concerns.”
European stocks fell sharply, along with bond prices, adding to the drag on the euro.
The dollar clocked its sixth straight quarter of gains against a basket of currencies by the end of September, its longest such stretch since 2022 when US rates were rising more quickly than those elsewhere. The dollar index was last up 0.2% on the day, around its highest level since mid-May.
“The US dollar seems to be showing more sensitivity, just at the moment, to what’s happening with say, 10-year Treasuries, than it is on pricing for when the next Fed rate hike might come,” said Ray Attrill, head of FX strategy at National Australia Bank.
“While yields are continuing to rise for the time being, I think it’s supportive for the dollar. If we do get an inflection point where it starts to really hurt the equity market, the dollar can benefit from that.”
Global bonds suffered their largest monthly decline in years in September, pushing yields higher, due to a toxic mix of deteriorating government finances, a glut of issuance and rising inflation.
Sterling was down 0.2% at $1.3242 after having slid 2.1% last month, but was steady against the euro, which traded at its weakest point since late June against the pound, around 85.4 pence.
Against the yen, the dollar was up 0.54% at 158.29 after falling 1.4% against the Japanese currency last month, while the Australian dollar fell to a two-month low of $0.6940 after domestic inflation came in slightly lower than forecast.
(Additional reporting by Rae Wee in Singapore; Editing by Jamie Freed and Thomas Derpinghaus)
