Euro hits lows against dollar and pound despite ECB rate increases
The currency has lost more than 5 per cent against the dollar since late August, reversing its summer recovery.
The euro dropped to about US$1.111, its lowest level since mid-May 2025, before recovering to around US$1.121. Higher energy costs, concerns over France’s finances and dollar strength weighed on the currency despite two interest-rate increases by the European Central Bank (ECB) this year.
Sterling also gained ground against the euro, which fell to approximately £0.842 before edging back to around £0.846. The low was its weakest level since early June 2025. The euro has declined roughly 2 per cent against the pound since late September, erasing its gains since mid-July.
The dollar index reached its highest level in 18 months after September US inflation came in above forecasts at 3.7 per cent. The figures roughly doubled traders’ bets on a Federal Reserve rate increase on 28 October. Strong UK economic data has meanwhile encouraged expectations of a Bank of England increase in November.
The ECB last lifted its deposit rate on 10 September, adding a quarter point to bring it to 2.5 per cent in response to the energy shock caused by the Iran war. Eurozone inflation has subsequently reached 3.8 per cent, a three-year high. Traders expect the ECB to leave rates unchanged on 29 October, followed by another increase in December.
French borrowing pressures have added to the strain. The gap between French and German 10-year bond yields exceeded 150 basis points earlier in October, its widest since around the 2011 euro debt crisis. France’s proposed 2027 budget seeks savings of some €54 billion but faces opposition in a divided parliament.
