EUR/USD falls to lowest since May 2025 despite hot inflation
Inflation rises in France and Germany, yet the euro loses ground. Fed rates support the dollar. What EUR/USD shows ahead of euro-area data.
Key Takeaways
- The euro is losing ground despite rising inflation in France and Germany.
- After a September drop of more than 2 percent, EUR/USD sits near 1.13, its lowest level since May 2025.
- Friday's euro-area flash estimate (3:00 p.m. CET) is the next test for the ECB.
Hot inflation data normally supports a currency because it makes rate hikes more likely. The euro is doing the opposite: despite hot readings from Paris and Berlin, EUR/USD is slipping toward 1.13 US dollars. The dollar sets the tone, not price pressure in Europe.
Hot readings from Paris and Berlin, a weak euro
French inflation rose to 3.4 percent in September, up from 2.6 percent in August. In Germany it climbed from 2.9 to 3.3 percent. Finanzmarktwelt notes that bond markets are punishing France harder than Germany. The yield premium of French ten-year bonds over German Bunds stands at 1.27 percentage points, the highest in 14 years, according to Finanzmarktwelt. France pays 4.87 percent, Germany 3.60 percent.
Little of this shows up in the currency market. According to Mitrade, EUR/USD trades around 1.1337 and has lost more than 2 percent in September. The euro is at its weakest since May 2025 and ranks among the weakest major currencies against the yen this month.
Why the dollar outshines inflation
The reason lies across the Atlantic. In mid-September the Fed raised its policy rate by 25 basis points to a range of 3.75 to 4.00 percent. Fed Chair Kevin Warsh struck a restrictive tone. The Bloomberg Dollar Spot Index gained about 2 percent within two weeks and hit its highest level since July, Finanzmarktwelt reports.
The market prices at least one more rate step this year at both the Fed and the ECB. Over twelve months, however, prices imply almost 90 basis points of Fed hikes. Citigroup strategist Daniel Tobon also sees a risk that the ECB may have to reverse course because of the strain on the economy, which would favor the dollar against the euro. Tobon has bet on a weaker euro since January.
What momentum says
Our snapshot of EUR/USD (price 1.1285) shows a bearish state on the 1-hour, 4-hour and 1-day timeframes, with a daily score of -0.87. Only the weekly timeframe is neutral. Momentum signals a clearly negative short-term trend, while the broader frame has not flipped yet.
Scenarios
If EUR/USD falls below Tuesday's low at 1.1312, that confirms the downtrend, according to Mitrade. The daily RSI of about 23 is deep in oversold territory, which technically favors a bounce.
If the pair rises above the psychological 1.1400 mark, 1.1470 and the 50- and 100-day averages at 1.1521 to 1.1532 come into focus.
If euro-area inflation on Friday beats the expected 3.6 percent, it supports bets on further ECB moves. If dollar strength stays dominant, though, the effect on the euro can fade.