US dollar surges in September, leaving euro lagging
Key drivers for the common currency will be expectations for Fed and ECB policy
The US dollar experienced a significant surge in September, reaching its highest level of the year against the euro and on track for its largest monthly gain against the euro in 14 months. This rise was driven by stronger US economic growth, rising interest rate expectations, and the Federal Reserve's decision to raise interest rates for the first time in three years.
In contrast, the euro struggled this year, weakened by Europe's energy and debt concerns. In September, the US dollar gained nearly 2.2% against the euro, setting the stage for a third consecutive quarterly advance. The Federal Reserve's hawkish stance on monetary policy, coupled with weaker eurozone growth and mounting debt worries, led traders to price in a more aggressive US monetary policy trajectory.
While some of this hawkish sentiment eased after comments from the New York Fed president, the euro remained close to its May 2025 low and tested support near 178 yen. Notably, traders have also shifted their focus to potential resolution of the Middle East conflict, which could impact the euro's performance.
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