Market News

Summary

• Euro slides around 2% in September to just below $1.14
• Gas prices top €80 per megawatt hour this month
• French 10-year bond premium over Germany rises above 110 basis points

LONDON, Sept. 29 (Reuters) — The fortunes of the euro, trading not far off its lowest levels of the year against the dollar, are being weighed down by a global energy shock and growing political risks in Europe.

The euro had been heading towards $1.20 in August, but has fallen around 2% this month to two-month lows of just below $1.14.

While a U.S. rate rise that has restored the Federal Reserve’s inflation-fighting credentials has bolstered the dollar, the euro’s outlook has also been clouded by political uncertainty and a renewed rise in oil prices that could hurt an economy that has held up better than expected.

“How long can this growth resilience last? Can it really last through the winter? And then we go into the spring, and we might have some messy politics,” said Jane Foley, senior currency strategist at Rabobank.

Chancellor Friedrich Merz is reeling from the success of Germany’s far-right in recent state elections, a shock that could force him to water down his promised reform agenda, while French markets are under pressure from concerns about high debt and political gridlock ahead of the 2027 presidential election.

“I am a little bit worried about the euro in that environment,” Foley said, adding that her forecast for the euro against the dollar at $1.16 in three months was under review.

The premium investors demand to hold French 10-year government bonds over triple-A-rated Germany has risen above 110 basis points, a warning sign for the euro.

Every further 10-basis-point widening would be associated with a 0.4% fall in the euro against the dollar, according to BofA FX strategists.

The single currency was last trading at around $1.137.