Euro Weakens as Fragmentation Fears Intensify and US Dollar Recovers
Analysts at OCBC warn that rising fragmentation fears in the Eurozone are tightening financial conditions, driven by higher sovereign borrowing costs and wider risk premia. This dynamic is raising concerns about financial stability, potentially making the European Central Bank (ECB) more cautious about further policy tightening. The Euro has come under renewed pressure, with EUR/USD falling to its weakest level since May 2025, reflecting broad-based selling pressure across major currency pairs.
In the US, the latest Nonfarm Payrolls report showed a smaller-than-expected increase of 29K in September, missing market forecasts. While the US Dollar initially weakened, it regained strength as wage inflation softened to 3%, below analysts' estimates. The probability of a Federal Reserve rate hike in October dropped below 20%, according to the CME FedWatch Tool. Economists at DBS suggest the USD’s recent rally is losing momentum due to softer economic data and shifting market expectations.
Gold prices fell over 3% last week, ending in negative territory for the second consecutive week. However, the precious metal saw modest recovery gains above $4,160 in early trading on Monday. Meanwhile, USD/JPY fluctuated in a tight range above 157.50, with Japan’s Chief Cabinet Secretary Minoru Kihara confirming no plans for additional crude oil releases from national reserves.