Dollar Poised for Biggest Monthly Gain Against Euro Since Last Year

The US dollar is poised for its biggest monthly gain against the euro in 14 months, driven by stronger economic growth and rising interest-rate expectations.

Data pointing to a resilient US economy has prompted the Federal Reserve to raise interest rates earlier this month, prompting traders to price in a more aggressive path for US monetary policy relative to the euro zone. As a result, the dollar has gained nearly 2.3% against the euro in September and is on course for a third consecutive quarterly advance.

However, Thu Lan Nguyen, an FX analyst at Commerzbank, notes that dollar strength appears 'fragile' due to its already high levels relative to interest rate differentials between the US and euro area. The key drivers of the euro's performance will be expectations for Federal Reserve and European Central Bank policy.