The euro came under fresh pressure on October 1, 2026, as the currency fell to a 17-month low against the US dollar. EUR/USD dropped below $1.13 for the first time since May 2025. The pair later traded near $1.1317, while another market report placed it near $1.1310.
The move came as the US dollar gained strength across major currency markets. The Dollar Index reached a more than three-month high, while US Treasury yields rose to very high levels. These factors made the dollar more attractive to global investors.
The euro also faced pressure from several problems inside Europe. Higher energy costs have raised inflation concerns. France faces serious fiscal pressure, while political uncertainty in Europe has added to concern about European assets.
The euro fell about 0.3% on October 1. It also lost almost 2.5% in September, its largest monthly decline since July 2025.
Why EUR/USD Is Under Pressure
EUR/USD shows the value of one euro in US dollars. When the pair falls, the euro loses value against the dollar.
The latest fall has several causes. One major reason is the rise in US Treasury yields. Another is the higher cost of energy in Europe. Political and fiscal concerns have also made some investors more careful about euro-based assets.
The US side of the pair has also played a major role. The dollar has gained support from high US bond yields and expectations that the Federal Reserve may keep its policy firm for longer than the market had expected.
This has created a difficult setup for the euro. Even when European inflation rises, that does not always help the currency. If higher inflation comes from expensive energy, it can hurt households and companies at the same time.
That type of price pressure can weaken economic activity. As a result, higher inflation does not always create strong demand for the euro.
US Treasury Yields Give the Dollar Support
US Treasury yields have become one of the main forces behind the latest EUR/USD decline.
The yield on the 10-year US Treasury note reached 5.342% on October 1. This was the highest level since early 2002. The rise came as global bond markets faced heavy pressure.
Higher US bond yields can attract investors who seek better returns. When global investors buy US bonds, they often need US dollars for those purchases. This can raise demand for the currency.
The move has been strong enough to support the dollar even after softer US inflation data.
That point is important for the euro. The latest US data did not show a major rise in price pressure. Yet the dollar still gained because long-term Treasury yields remained high.
The bond market has therefore become a key part of the EUR/USD story.
US Inflation Gives a Mixed Signal
US inflation data gave the market a mixed message.
The core Personal Consumption Expenditures price index rose 3% on a yearly basis in August. The market had expected a rise of 3.3%. The monthly increase was 0.2%, below the expected 0.3%.
The PCE price index is an important measure for the Federal Reserve. A softer result can reduce the need for a near-term rate hike.
After the data, market expectations for an October Fed rate hike fell. FXStreet reported that the chance of a quarter-point hike dropped to about 38.2% from 51% a day earlier.
Yet the dollar did not lose its wider support.
The reason is that longer-term US yields continued to rise. Investors also remain alert to fresh inflation risks from energy costs.
This has created a split view in the market. Short-term rate expectations have eased, but long-term yields remain high. That has helped the dollar retain its strength against the euro.
Europe Faces Higher Energy Costs
Energy has become a major issue for the euro area.
Europe relies heavily on imported energy. When oil and gas prices rise, European companies and households face higher costs.
That can hurt the economy in several ways. Companies may face higher production costs. Families may have less money for other goods and services. Governments may also face pressure to offer support to households and businesses.
The result can be higher inflation at the same time as weaker economic growth.
This is a difficult situation for the European Central Bank. If inflation rises, the ECB may need to keep rates high. But if high energy costs hurt economic activity, tighter policy can create more pressure on growth.
The market is therefore not treating higher European inflation as a simple positive for the euro.
European Inflation Is Rising
Recent inflation data from major eurozone economies has added to the concern.
Spain’s September inflation rate reached 5%, its highest level since 2023. Germany, France, Italy and Spain all reported September inflation figures above forecasts.
Eurozone flash inflation is due on Friday. The market forecast is for 3.6%, compared with 3.2% in the previous period.
At first glance, higher inflation could support the euro because it may push the ECB toward higher interest rates.
But the source of the inflation matters.
Much of the new price pressure has come from energy costs. Higher energy prices can reduce household spending and hurt company profits. That can create a weaker economic outlook.
As a result, the euro has failed to gain from the recent rise in European inflation.
ECB Faces a Difficult Choice
The European Central Bank now faces a difficult policy situation.
ECB President Christine Lagarde has said that the central bank should take a measured response because there is no clear evidence of second-round inflation effects.
She has also noted that higher bond yields can reduce economic growth. In simple terms, expensive borrowing can slow demand and make it harder for businesses and households to spend.
This creates a difficult balance for the ECB.
If the bank raises rates too much, it could add pressure to a European economy already affected by high energy costs. If it does not act enough, inflation could remain high for longer.
The market expects another ECB rate hike later in the year. TD Securities expects a final 25 basis point hike in December, which would take the deposit rate to 2.75%.
Yet that expectation has not been enough to stop the euro’s fall against the dollar.
France Adds Fiscal Pressure
France has become another source of concern for the euro.
The country faces a difficult fiscal outlook, with high debt and pressure on government finances. The gap between French and German bond yields has widened.
This matters because Germany is often used as the main benchmark for eurozone government debt. A wider gap can show that investors see more risk in French debt than in German debt.
Higher French borrowing costs can create more pressure on the government budget.
That has also raised questions about the wider financial position of the euro area.
When investors become less comfortable with the fiscal outlook of a major eurozone country, demand for euro-based assets can weaken.
The issue is not limited to France. Investors are also watching Germany and other large European economies for signs of higher debt, weak growth or greater political risk.
Political Risk Hurts Confidence
Political uncertainty has also added pressure to the euro.
Reuters reported concern about France’s worsening fiscal outlook and political uncertainty in Germany. Gains for the far-right AfD party in Germany have added to the political debate and created another source of uncertainty for investors.
France also faces political problems ahead of its 2027 election.
These issues do not directly set the value of the euro. But they can affect how investors view European assets.
When political uncertainty rises, investors may demand higher returns before they buy government debt. That can push bond yields higher and raise borrowing costs.
It can also reduce confidence in the region’s economic outlook.
For the euro, this comes at a difficult time because energy costs and bond yields are already high.
September Was a Bad Month for the Euro
The latest fall comes after a weak September for EUR/USD.
The euro lost almost 2.5% in September. This was its biggest monthly fall since July 2025.
The scale of the move shows how much the market view has changed.
Earlier in the year, the euro had traded much higher. EUR/USD had come close to $1.20 in August before the latest decline.
The pair then moved sharply lower as the dollar gained strength and European risks increased.
The euro is now close to the bottom of its broad yearly range. FXStreet reported that the pair had traded within a 1.13–1.20 range during the year.
This leaves the $1.13 area as an important level for the market.
What Happens Below $1.13?
EUR/USD traded close to 1.1310 on October 1. This puts the pair very close to the key 1.1300 level.
FXStreet said downside pressure could become stronger if the pair moves below 1.1300.
Another technical analysis from RoboForex placed the next areas of interest near 1.1290–1.1283 after a clear break below 1.1300.
On the other side, 1.1355 has been identified as an important resistance level. A move above that area could reduce some of the immediate downside pressure.
These are market levels rather than guarantees. Currency prices can change quickly after economic data, central bank comments or geopolitical news.
Friday’s Inflation Data Matters
The next major European test will come from the eurozone’s September inflation report.
The flash HICP report is due on Friday. The market expects eurozone inflation at 3.6%, compared with 3.2% before.
A higher result could increase expectations for more ECB action. But the effect on the euro may depend on why inflation is high.
If energy remains the main source of price pressure, investors may worry about growth as well as inflation.
That would make the ECB’s job harder.
The market will therefore look at the full details rather than just the headline number.
US Jobs Data Is Also Important
US employment data will provide another major test for EUR/USD.
The September US labour market report is due on Friday. The result could affect expectations for Federal Reserve policy and US Treasury yields.
A strong US jobs report could support the view that the US economy can handle high interest rates. That could keep Treasury yields high and give the dollar more support.
A weaker result could have the opposite effect if it reduces expectations for future Fed rate hikes.
The US weekly Initial Jobless Claims report is also due on October 1.
These reports matter because EUR/USD is affected by both sides of the currency pair. European data can move the euro, but US data can move the dollar just as strongly.
Dollar Strength Is the Other Side of the Story
The euro’s decline cannot be explained only by problems in Europe.
The US dollar has also become stronger.
The Dollar Index reached a more than three-month high on October 1. The main support came from higher US Treasury yields and continued demand for the dollar.
This means the EUR/USD decline is partly a story about Europe and partly a story about the United States.
The dollar also has a major safe-haven role. During periods of higher global risk, investors often prefer highly liquid dollar assets.
That can create extra demand for the US currency when markets face geopolitical or financial uncertainty.
What the Euro Market Faces Now
The euro now faces several major tests at the same time.
EUR/USD has fallen below $1.13, while US 10-year Treasury yields have reached 5.342%. European inflation has risen, energy costs remain high and political concerns have increased.
At the same time, the ECB still has the option of further rate hikes. US inflation has shown some moderation, which has reduced expectations for an immediate Fed move.
This leaves the market with two very different policy stories.
The ECB faces high inflation caused in part by energy costs. The Federal Reserve faces a US economy that still has strong areas but also faces new inflation risks.
The difference between these two economies will remain important for EUR/USD.
The Euro Enters October Under Pressure
The euro has started October at a weak point. On October 1, EUR/USD fell below $1.13, its lowest level in 17 months. The pair traded near $1.1317, while FXStreet reported a level close to $1.1310 during European trade.
The main forces are clear. High US Treasury yields have helped the dollar. Higher energy costs have hurt Europe’s economic outlook. Inflation has risen across major eurozone economies. France faces fiscal pressure, while political uncertainty has added another risk.
The ECB may still raise rates, but that alone has not been enough to support the euro.
The next major clues will come from eurozone inflation and US jobs data. These reports can change expectations for both central banks and may decide whether EUR/USD can hold above $1.13.
For now, the euro remains under pressure, while the dollar has the stronger position in the currency market. The next few trading sessions will show whether the euro can find support near the $1.13 area or face another test of lower levels.
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