Euro Stumbles as Rate Gap Widens and Oil Prices Surge

The euro has started the final week of September on the back foot, trading at its weakest level since late July. The EUR/USD pair is down 1.80% over the past month and near a two-month low.

The damage is cumulative rather than sudden, with the pair losing 0.80% over the past seven sessions and 3.01% over the past twelve months. Every rally attempt this morning has faded below the 1.1400 level, which the pair has not held above since last Wednesday.

The Federal Reserve's decision to hike interest rates by 25 basis points on September 16 and signal more increases could follow has widened the rate gap between the Fed and the European Central Bank. The ECB raised its three key rates by 25 basis points six days earlier, but at a slower pace. This difference in policy rates is contributing to the euro's decline.

The energy shock triggered by President Trump's rejection of Iran's proposal to reopen the Strait of Hormuz has also hit the euro harder than the dollar. Brent crude jumped to $106.55, and higher oil prices widen the current account deficit for European economies while leaving the trade balance in better shape for the United States.

The week ahead will be decisive, with key data releases on both sides of the Atlantic. The eurozone's flash September inflation estimate and US PCE report on Wednesday will set the stage for Friday's US payrolls release.