Euro's dollar resilience faces energy price, political risk tests
FXE•The euro fell around 2% in September to just below $1.14 as higher energy prices and political risks in Europe weighed on its outlook. European gas prices topped €80 per megawatt hour, while the premium on French 10-year bonds over German bonds rose above 110 basis points.
1. Political risks weigh
The euro, which had been heading towards $1.20 in August, fell around 2% in September to two-month lows just below $1.14. Political uncertainty in Germany and France is adding pressure, with the premium on French 10-year government bonds over German bonds rising above 110 basis points.
2. Energy prices cloud outlook
The Iran war has disrupted liquefied natural gas shipments through the Strait of Hormuz, pushing European gas prices above €80 per megawatt hour this month, their highest since late 2022. Analysts said prices need to soften for the euro to resume its ascent; one portfolio manager said gas prices of €85 to €100 per megawatt hour could send the euro to $1.12.
3. Forecasts remain mixed
Options traders have turned more negative on the euro. Rabobank's Jane Foley said her three-month forecast of $1.16 was under review, while ING maintained its year-end forecast of $1.16; ING said hawkish central banks should prevent a sharp depreciation.
