Dollar set for big rise in September, mainly at euro's expense

On September 30, the dollar reached near its highest level of the year against the euro, setting up for its biggest monthly gain against the single currency in 14 months. The euro struggled as Europe grappled with energy and debt concerns. The greenback's surge was driven by robust US growth and expectations of rising interest rates.

In September, the dollar climbed nearly 2.3% against the euro, putting it on track for a third consecutive quarterly advance. The Federal Reserve's decision to raise interest rates earlier this month, for the first time in three years, played a significant role. However, trader sentiment softened slightly after John Williams, the New York Fed president, indicated there was no urgency in further rate hikes.

Meanwhile, French data revealed consumer inflation in September was more robust than anticipated. Analysts suggest the current dollar strength could be short-lived due to its over-stretched position relative to the US-Euro rate differential. The next major factors impacting the euro and dollar will be policy decisions from the Federal Reserve and the European Central Bank.

Market data shows a growing demand for protection against further euro weakness. Sterling also benefited from stronger than expected UK economic growth. Traders are closely monitoring economic data from both the US and Europe, including German inflation figures and the Fed's preferred inflation measure. The dollar has been on a strong streak this month, reaching near a 17-month high against the Swiss franc.