Dollar Strengthens Against Euro Amid Rising Interest Rate Expectations

The US dollar has experienced its largest monthly gain against the euro in 14 months, reaching nearly 2.2% in September.

This surge is attributed to stronger US growth and rising interest-rate expectations, which have prompted the Federal Reserve to raise rates for the first time in three years.

The greenback has been bolstered by a run of data indicating a resilient US economy and persistent inflation, leading traders to price in a more aggressive path for US monetary policy relative to the eurozone.

However, Thu Lan Nguyen from Commerzbank notes that the current dollar strength is 'fragile' and may be overstretched even relative to developments in the euro area-US interest rate differential.