Dollar Surges Against Euro as Fed Hikes Interest Rates

The US dollar is poised for its biggest monthly gain against the euro in 14 months, driven by stronger US growth and rising interest-rate expectations. As of September 30th, the dollar has gained nearly 2.2% against the euro this month, putting it on track for a third consecutive quarterly advance.

The euro has been under pressure due to Europe's energy and debt worries, while the Federal Reserve's decision to raise interest rates for the first time in three years has prompted traders to price in a more aggressive path for US monetary policy relative to the euro zone. Some of this hawkish Fed pricing eased on Wednesday after New York Fed President John Williams said there was 'no need for urgency' in raising rates.

Thu Lan Nguyen, an FX analyst at Commerzbank, cautioned that the current dollar strength is 'rather fragile', noting that it already appears over-stretched relative to developments in the euro area-US interest rate differential. Key drivers for the euro will be expectations for Federal Reserve and European Central Bank policy.