The US dollar is heading for its strongest monthly performance against the euro in more than a year, supported by signs of stronger economic growth in the United States and expectations surrounding interest rates.
The dollar was trading close to its highest level of the year against the euro on Wednesday, September 30, after gaining nearly 2.3 percent against the European currency during September.
The move puts the dollar on track for its biggest monthly increase against the euro in 14 months and a third consecutive quarterly advance.
The euro has remained among the weaker-performing major currencies this year, with concerns over Europe’s energy situation, economic growth and rising debt weighing on sentiment.
Recent US economic data pointing to resilient growth and persistent inflation have also influenced expectations about the Federal Reserve’s interest-rate policy.
The Federal Reserve raised interest rates earlier this month, its first increase in three years, while traders subsequently increased expectations that US monetary policy could remain tighter compared with the euro zone.
However, some of those expectations eased on Wednesday after New York Federal Reserve President John Williams said there was “no need for urgency” in raising interest rates.
The euro edged up to around $1.135 but remained close to its May 2025 low reached in the previous session.
Thu Lan Nguyen, an FX analyst at Commerzbank, said the recent strength of the dollar could prove fragile.
“I would still regard the current dollar strength as rather fragile, not least because it already appears over-stretched even relative to developments in the euro area-US interest rate differential,” Nguyen said.
Investors are closely watching decisions and signals from both the Federal Reserve and the European Central Bank, with monetary policy expected to remain a major driver of movements in the euro-dollar exchange rate.
ECB President Christine Lagarde’s recent comments were interpreted by markets as pushing back against expectations of consecutive interest-rate increases.
Demand for options that protect investors against further euro weakness has also increased in recent sessions.
Sterling, Yen and Swiss Franc
The British pound recovered slightly from a three-month low, trading around $1.3265 after data showed that the UK economy expanded faster than previously estimated during the second quarter.
Markets are also awaiting key economic figures from both sides of the Atlantic, including Germany’s September inflation data and the US Personal Consumption Expenditures index for August, a closely watched measure of inflation by the Federal Reserve.
Expectations for a 25-basis-point US rate increase next month have also fallen. Traders now see roughly a 44 percent chance of such an increase, compared with about 70 percent earlier in the week.
Markets, meanwhile, expect the European Central Bank to leave interest rates unchanged in October.
The dollar has also strengthened against several other major currencies during September, supported partly by rising US Treasury yields, which have climbed to multi-year highs.
Against the Swiss franc, the dollar was trading near a 17-month high at about 0.8333 francs.
The franc has faced pressure as investors look for other low-yielding currencies to use in carry trades.
The Japanese yen has also become less attractive for such trades following Japan’s currency intervention in July, repeated warnings from Japanese authorities over excessive exchange-rate movements and an acceleration in domestic interest-rate increases.
Despite the broader dollar strength, the US currency has fallen about 1.7 percent against the yen in September and nearly 3.4 percent during the third quarter.
