The euro came under fresh pressure on September 29, 2026, as a mix of high energy costs, political uncertainty and wider bond spreads hurt the currency. EUR/USD fell to around $1.137, its lowest level in three months.
The move came at a difficult time for the euro area. Energy prices remain high, while investors have concerns about the economic outlook in Europe. At the same time, political risk has added another source of pressure.
The euro has also faced a stronger US dollar. The dollar has gained support from higher US Treasury yields and higher expectations for another Federal Reserve rate hike. This has made the difference between the US and European interest rate outlook more important for the foreign exchange market.
The euro’s fall to around $1.137 shows how several pressures can affect a major currency at the same time. Traders now have to watch energy prices, European politics, bond markets and central bank policy as they assess the next move in EUR/USD.
Why the euro is under pressure
The euro has faced pressure from several areas at once. One of the main concerns is the rise in energy costs across Europe.
Higher energy prices can hurt European consumers and companies. They can raise household bills and increase costs for businesses. If those costs stay high for a long period, they can also affect economic growth.
Europe is especially sensitive to energy prices because many parts of its economy depend on imported energy. A sharp rise in oil and other energy costs can therefore create a difficult situation for policymakers.
The European Central Bank has to deal with two risks at the same time. High energy costs can push inflation higher, but weaker economic activity can create pressure for lower rates. This can make monetary policy harder to manage.
For the euro, the problem becomes greater when the US has a stronger interest rate outlook. If US rates stay high while the European rate outlook looks less aggressive, the dollar can gain an advantage over the euro.
Energy prices add to Europe’s problems
Energy prices have become a major factor for the euro market. Brent crude was near $104.5 a barrel on September 29.
The rise in oil prices has increased concern about inflation across major economies. For Europe, the effect can be especially important because higher energy costs can put pressure on both consumers and companies.
A sustained rise in oil prices can raise transport costs, production costs and household expenses. Businesses may then face higher costs for goods and services. Some of these costs can pass to consumers through higher prices.
That creates a difficult choice for the European Central Bank. If inflation remains high, the ECB may need to keep rates at a higher level. But if high energy costs weaken economic activity, the central bank may also face pressure to support growth.
The market response depends on which risk investors see as more important. At present, concern about European growth and political stability has added to the pressure on the euro.
French-German bond spread gets wider
Another issue for the euro is the gap between French and German bond yields.
The French-German bond spread is closely watched because Germany is often treated as a key benchmark for euro area government debt. A wider spread can show that investors demand more return to hold French debt compared with German debt.
A wider gap can also reflect higher concerns about France’s fiscal and political situation.
The increase in the spread has added to pressure on the euro because investors have become more cautious about European assets. When concerns about government finances rise, the currency can face additional pressure.
The bond market does not work in isolation. Changes in bond yields can affect expectations for economic policy, government spending and central bank decisions. These factors can then affect foreign exchange markets.
For the euro, the wider French-German spread has become another concern at a time when the currency is already under pressure from high energy costs and a strong dollar.
Political risk adds another challenge
Political uncertainty has also affected the euro.
Investors prefer greater clarity when they decide where to place their money. Political uncertainty can make that decision harder because future economic and fiscal policies may become less clear.
France has remained a key focus because of concerns about its public finances and political situation. Any increase in uncertainty can lead investors to demand a higher return on French government debt.
That can push French yields higher compared with German yields. A wider spread can then create another source of pressure for the euro.
Political risk does not always cause an immediate currency fall. However, when it appears at the same time as high energy costs and weak economic expectations, the effect can become stronger.
This is the situation the euro faced on September 29.
Strong dollar makes the fall worse
The euro’s weakness cannot be viewed without the US dollar.
The dollar has been close to a two-month high as US Treasury yields have risen. The two-year US Treasury yield has moved close to 5%, its highest level in more than two years.
The market now sees more than a 70% chance of a Federal Reserve rate hike at the end of October. A week earlier, that probability was about 57%, based on the CME Group’s FedWatch tool.
This change has helped the dollar.
Higher US rates can make dollar assets more attractive to investors. If investors expect the Federal Reserve to keep rates high, demand for US assets can rise.
This can create pressure on EUR/USD even if there is no major new problem inside Europe. The euro can fall simply because the dollar has become stronger.
The current move therefore reflects both sides of the currency pair. Europe faces its own risks, while the US has a stronger rate outlook.
EUR/USD reaches $1.137
EUR/USD fell to around $1.137 on September 29. This was a three-month low.
The pair had already faced pressure before the latest move. The dollar’s rise and concerns about the European economy have made it harder for the euro to hold its value.
A fall to $1.137 is important because traders often watch previous lows as key areas. If the euro stays below these levels, market attention can shift toward the next support areas.
However, currency markets can change direction quickly. A softer US economic report or a change in Federal Reserve expectations could reduce some of the dollar’s strength.
The next major US data releases therefore matter for EUR/USD. The US PCE price index is due on Wednesday, while the US nonfarm payroll report is due on Friday.
ECB policy remains important
The European Central Bank remains a major factor for the euro.
The ECB has to balance inflation against economic growth. Higher energy costs can raise inflation, but they can also weaken demand.
This creates a difficult policy environment. If the ECB keeps rates high to fight inflation, it may put more pressure on economic activity. If it takes a softer approach, investors may see a larger gap between European and US rates.
ECB President Christine Lagarde has pushed back against some aggressive market expectations for future ECB rate hikes. This has added to the difference between the European and US rate outlooks.
The Federal Reserve, meanwhile, has gained more support from the market for another rate hike. That difference has helped the dollar against the euro.
Why bond yields matter for EUR/USD
Bond yields are one of the most important parts of the current currency story.
When US Treasury yields rise, investors may find US assets more attractive. This can raise demand for the dollar.
European bond yields also matter. If French yields rise because of fiscal or political concerns, that does not automatically mean the euro will gain. A rise caused by higher risk can have the opposite effect.
This is why traders watch the French-German bond spread closely.
Germany has often served as a key reference point for euro area government bonds. If the yield gap between France and Germany becomes wider, investors may see more risk in French assets.
That concern can affect the wider euro area and place additional pressure on the single currency.
What could happen next
The euro’s next move will depend on several major factors.
Energy prices remain one of the biggest risks. If Brent crude stays close to $104.5 a barrel or rises further, European inflation concerns may remain high.
US economic data will also have a major role. Strong US data could support expectations for another Federal Reserve rate hike. That could give the dollar more support and place more pressure on EUR/USD.
Weak US data could have the opposite effect. If inflation or employment data show signs of weakness, traders may reduce their expectations for further US rate hikes. That could weaken the dollar and give the euro some room to recover.
European political developments will also matter. A reduction in political uncertainty could ease some pressure on the euro. A fresh rise in fiscal or political concerns could create another source of weakness.
The wider euro outlook
The euro’s fall to a three-month low is part of a wider shift in the foreign exchange market.
The dollar has become stronger as US yields rise and rate hike expectations increase. At the same time, the euro has faced pressure from energy costs, political uncertainty and bond market concerns.
These forces have created a difficult environment for EUR/USD.
Morgan Stanley has also changed its dollar outlook and now expects US currency strength through the end of 2026 and into 2027. The bank expects stronger US growth, higher expected rates and European risk premiums to support the dollar. It expects EUR/USD to fall to $1.10 by the middle of 2027. This is the bank’s forecast, not a guaranteed market outcome. (reuters.com)
The forecast shows how some major financial institutions now see a longer period of dollar strength. However, forecasts can change when economic data, central bank policy or political conditions change.
Euro faces several tests
The euro now faces several important tests.
The first is the energy market. Oil near $104.5 a barrel can keep pressure on European inflation and household costs.
The second is the European bond market. A wider French-German spread can keep concerns about European fiscal risk alive.
The third is US monetary policy. More than a 70% chance of a Federal Reserve rate hike at the end of October shows that the market has become more focused on higher US rates. That is a clear source of support for the dollar.
The fourth is US economic data. The PCE price index and nonfarm payroll report can change expectations about the Federal Reserve.
What the euro move tells us
The fall to $1.137 is not the result of one single event. It comes from several forces that now work against the euro.
High energy prices have raised concern about inflation and growth. Political uncertainty has made European assets less attractive to some investors. A wider French-German bond spread has added to concerns about fiscal risk. At the same time, higher US Treasury yields have helped the dollar.
Together, these factors have pushed EUR/USD to a three-month low.
For now, the euro market remains closely tied to both European developments and US rate expectations. A change in either area can affect the currency pair.
The next few days will be important. US inflation and jobs data can alter expectations for the Federal Reserve, while energy prices and European political news can shape views on the euro.
As of September 29, the main picture is clear: EUR/USD is near $1.137, Brent crude is near $104.5 a barrel, US Treasury yields are high, and the market sees more than a 70% chance of a Federal Reserve rate hike at the end of October. These figures have created a difficult backdrop for the euro as it tries to recover from its three-month low.
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