European Currencies Dragged Down by Domestic Turmoil and Rising Political Risks

The European currencies are facing significant pressure due to domestic turmoil and rising political risks. The US dollar has reached its highest level since late July, gaining more than 2% over the last seven trading sessions.

Rising energy prices and associated high core inflation concerns in the Middle East are also contributing to the strengthening of the dollar. Recent comments from FOMC members indicate that these factors may drive up core inflation through second-round effects, requiring the Fed to continue raising rates aggressively.

The GBPUSD is falling on concerns ahead of the publication of the UK budget proposal by Andy Burnham's government. The new Prime Minister's excessive stimulus measures could clash with the BoE's monetary policy tightening, increasing the risk of a repeat of the 2022 scenario, which saw the pound plummet and was followed by Liz Truss's resignation.