Europe's woes give dollar bulls fresh reason to press on
SPY•The dollar has risen about 5% against the euro this year, reaching an 18-month high as investors weigh European fiscal and political risks against resilient U.S. growth and elevated interest rates. Some investors see room for further dollar gains.
1. Dollar gains momentum
The dollar has climbed to an 18-month high this fall, with uncertainty in Europe adding to support from high and likely rising U.S. interest rates, resilient economic growth and persistent inflation risks. It has appreciated about 5% against the euro this year.
2. Europe weighs on euro
Fiscal worries in France and possible stress in Italy and across the euro zone have pressured the euro. The spread between French and German 10-year bond yields posted its biggest weekly jump in decades last week, while the Italian-German yield gap had its steepest weekly increase since the COVID-19 pandemic.
3. Options turn bearish
One-month euro risk reversals were at their most bearish since March, and the three-month measure reached its most negative level since June 2024. Macro Hive researcher Benjamin Ford expects the euro to fall to $1.10 within the next month; Fed funds futures showed an about 84% chance of at least one more 25-basis-point rate hike by December.
