The U.S. dollar is trading near a three-month high; can European currencies rebound?

The U.S. dollar is trading near a three-month high; can European currencies rebound?

01.10.2026 New

In the U.S. currency market the previous day, the dollar held steady against a backdrop of rising long-term interest rates, even as expectations for an additional rate hike in October faded after the U.S. August PCE deflator came in at 3.4% year-over-year, below the market forecast of 3.7%.September ADP employment rose by 90,000, exceeding market expectations of 70,000 and accelerating from the previous month’s gain of 36,000. The yield on the 10-year U.S. Treasury note rose to 5.306% today, and the Dollar Index hit 101.66, its highest level in more than three months.The dollar rose to 158.29 yen against the yen, with rising long-term interest rates—rather than short-term policy rate expectations—proving to be the primary support for the dollar.

Among European currencies, the euro fell to $1.1317 against the dollar, ending September down about 2.5%. The pound also fell to $1.32495, ending September down about 2.1%.Meanwhile, Germany’s September CPI rose 3.3% year-over-year, accelerating from 2.9% the previous month, and inflation rates also rose in France and Italy. While rising energy prices are heightening concerns about the ECB tightening policy further, the strong U.S. dollar is capping gains in the euro and the pound.Today, following remarks by Bank of England Governor Bailey and ECB President Lagarde, we will be watching to see if there are any changes in the monetary policy outlook for European currencies.

Today’s economic indicators include the Swiss September CPI and the revised September manufacturing PMIs for France, Germany, the Eurozone, and the UK.Additionally, remarks by Bank of England Governor Bailey are scheduled for 5:00 p.m., the Eurozone’s August unemployment rate at 6:00 p.m., remarks by ECB President Lagarde at 10:30 p.m., and the U.S. September ISM Manufacturing Index at 11:00 p.m.In Europe, the focus will be on whether high inflation and economic strength are confirmed simultaneously, while in the U.S., the focus will be on whether manufacturing expansion continues. Since expectations for monetary tightening could shift in both Europe and the U.S., we will be watching the reactions of the euro/dollar and pound/dollar pairs closely.