Euro Slips Out of Range as Dollar Reaches 18-Month High
The US dollar has reached an 18-month high due to strong macroeconomic data, rising bond yields, and rebounding oil prices. The revised second-quarter GDP growth rate from 1.6% to 2.2% indicates that the US economy is outperforming Europe's, supporting higher interest rates. Personal consumer spending surged by 0.9% in August, exceeding forecasts.
However, this did not trigger an acceleration in core inflation from 3.0% year-over-year. Instead, markets realized that current rates remain significantly above the 2% target set by the Fed. Goldman Sachs estimates that oil exports from the Middle East exceeded 23.3 million barrels per day, surpassing the 2025 figure, with Brent prices remaining high due to reduced global stocks and escalating conflict risks.
The European economy is facing challenges, including accelerating inflation and a deteriorating trade balance. The EURUSD has broken out of its consolidation range and fallen below 1.13, its lowest level since May 2025. This is attributed to the ECB's inability to raise interest rates rapidly due to concerns about fueling economic contraction.
The situation in France is particularly concerning, with a slowdown in the eurozone's second-largest economy potentially widening the budget deficit from 5.1% to 5.6% of GDP in 2026. The yield spread between local and German bonds has widened to 130 basis points, its highest level since the European debt crisis.