Euro extends losses to four-week low under US pressure

The euro fell against a basket of global currencies in European trading on Monday, extending its losses against the US dollar for a third consecutive day and hitting a four-week low, pressured by a stronger US currency and rising long-term US Treasury yields ahead of the Federal Reserve’s policy meeting.

Reports indicated that the European Central Bank is considering raising interest rates at its upcoming October meeting for the second consecutive time, amid mounting inflationary pressures driven by higher oil and natural gas prices as geopolitical tensions in the Middle East intensify.

The Price

• The euro fell more than 0.3% against the US dollar to $1.1558, its lowest level since August 14, from an opening price of $1.1595, while recording a high of $1.1598.

• The euro ended Friday’s trading down 0.1% against the dollar, marking its second consecutive daily loss amid US pressure.

• The euro lost around 0.15% against the dollar last week, its second weekly decline in the past three weeks, pressured by rising US Treasury yields.

US dollar

The US Dollar Index rose 0.3% on Monday, hitting a two-week high of 99.40 points, reflecting broader gains in the US currency against a basket of major and minor currencies.

The yield on the 10-year US Treasury note rose 0.3% today, extending its gains for a sixth consecutive session and approaching a three-year high near the 5% threshold, providing further support for the US dollar.

The move in the US bond market comes as global oil prices trade near their highest levels in four months, adding to inflationary pressures facing Federal Reserve policymakers.

The Federal Reserve begins its policy meeting on Tuesday, with its monetary policy decision due on Wednesday. Markets are pricing in an 86% probability of a 25-basis-point interest rate hike, which would be the first increase since July 2023.

European Central Bank

• The European Central Bank raised its key interest rates by 25 basis points last week to 2.65%, the highest level since March 2025, marking its second rate increase this year.

• The ECB’s decision was unanimous and aimed at confronting renewed inflationary pressures stemming from the energy price shock and disruptions to maritime shipping.

• The European Central Bank has become increasingly concerned that elevated inflation could persist for longer, with prices expected to remain above its 2% target for an extended period.

• European Central Bank President Christine Lagarde warned that the conflict in the Middle East continues to generate inflationary pressures and that inflation is likely to remain above target for longer.

European interest rates

• ECB sources said further monetary policy tightening is likely, with another interest rate hike potentially being discussed as early as October.

• Money markets currently price the probability of a roughly 25-basis-point ECB rate hike in October at below 50%.

• Investors are awaiting an important speech from ECB President Christine Lagarde later today during a discussion on the economy, Europe and resilience in Vienna, which could lead markets to reassess those expectations.

Euro outlook

We expect that the euro will remain in negative territory against the US dollar, with a strong possibility of falling to fresh multi-week lows. If Lagarde’s comments are more hawkish than markets currently expect, the euro’s losses could come to a halt and the currency could begin recovering against a basket of global currencies.