USD Surges as Brent Crude Prices Rebound, Euro Weighed Down by European Risks
The US dollar has strengthened its position against other major currencies as Brent crude prices rebounded from their longest slide since July. The greenback's advance is being supported by a combination of factors, including continued economic growth and capital outflows from Europe.
Capital outflows from Europe are linked to high fuel prices and escalating political risks in Germany and financial risks in France. Diesel prices in the US have hit record highs, which is accelerating inflation expectations and fuelling anticipation of an aggressive tightening of the Federal Reserve's monetary policy.
The probability of two further rate rises by the end of the year has risen to 45%, up from 29% a week earlier. The market is pricing in a weighted-average rate of 4.69% as of September 15, 2027, which is driving the USD's rise during this period.
The euro is facing additional challenges due to political risks in Germany. The CDU's defeat in regional elections has sparked rumours about Friedrich Merz's potential resignation as Chancellor, overshadowing an upward revision of German GDP growth forecasts from 0.6% to 1.3% in 2026.
In France, a budget crisis is looming due to unsustainable public debt and a substantial budget deficit. Slower economic growth and soaring energy imports have left little room for manoeuvre.