Key Notes
- The euro fell below $1.13 to a 16-month low as expectations for further Fed tightening supported the dollar.
- Bearish options pricing points to concern about euro weakness, but hedging demand is not a firm exchange-rate forecast.
- ABN AMRO still expects EUR/USD at $1.15 by year-end, with energy costs and policy expectations shaping the outlook.
The euro fell to a 16-month low against the dollar on October 1 as expectations of further Federal Reserve tightening kept pressure on the single currency. EUR/USD reached $1.1286 in early European trading, Dow Jones reported, extending a decline that has pushed the pair below $1.13.
The move puts the gap between American and European interest-rate expectations back at the center of the currency market. Bearish options pricing adds another indication of concern about the euro, although it does not establish how far the currency will fall or rule out a recovery before year-end.
Euro Extends Its Slide Below $1.13
The latest decline follows a test of the $1.1310 area on September 29, which TradingView identified as the euro’s weakest level since May 2025. Its September 30 analysis described that area as the lower boundary of a descending price channel, where buying interest or traders closing short positions could temporarily slow the fall.
Thursday’s lower quote illustrates the limits of that support. A chart level can attract trading activity without stopping a broader decline, particularly when expectations for interest rates continue to favor the other currency.
The dollar’s strength also persisted after the latest American inflation release. The Bureau of Economic Analysis reported that core personal consumption expenditures prices rose 3.0% from a year earlier in August. Its updated series also put June and July at 3.0%, highlighting the importance of assessing the revised trend rather than treating one release as a decisive policy signal.
Interest-Rate Expectations Favor the Dollar
ABN AMRO strategist Georgette Boele attributed the dollar’s recent advance primarily to wider interest-rate differentials. In an October 1 note, she said markets were pricing roughly 90 basis points of additional Fed increases by the end of 2027, up from 65 basis points on September 17. Expectations for European Central Bank increases over that period had changed only slightly.
Those figures describe market expectations, not decisions already taken by either central bank. Their importance for exchange rates lies in the relative return investors anticipate from holding dollar assets rather than euro assets.
The shift connects with the wider pressure in Treasury markets. Rising yields influence currency allocation as well as financing costs, while a change in the expected path of policy can move exchange rates before any new rate decision is announced.
Options Show Concern About Further Euro Weakness
Bloomberg reported earlier this week that long-term euro options sentiment had turned the most bearish since March 2025 during the previous week. That measure offers evidence of downside concern, but it should not be confused with a forecast for the exchange rate at a specific date.
Options sentiment is often assessed through the relative pricing of protection against declines and exposure to gains. CME Group’s research explains that euro options typically carry a downside bias against the dollar, with the degree of that bias changing alongside interest-rate differences and political risks.
A more negative reading can reflect hedging demand as well as speculation. It is not a count of investors predicting a decline, and different expiration dates can produce different readings. Options prices therefore need to be considered alongside the spot market and the economic outlook.
Businesses Face Different Currency Effects
For euro-area businesses paying dollar-denominated bills, a weaker euro raises the local-currency cost of those payments unless they have hedged the exposure. Exporters receiving dollars can benefit when they convert revenue into euros, although imported inputs can offset part of that advantage.
The same distinction matters for investors. A euro-based investor’s unhedged dollar holdings gain from dollar appreciation when translated back into euros; an American investor holding unhedged euro assets faces the opposite translation effect. The underlying asset’s performance remains a separate source of gains or losses.
ABN AMRO still forecasts EUR/USD at $1.15 at the end of 2026. The bank sees scope for the dollar to lose support if aggressive Fed expectations soften, while elevated energy prices limit the euro’s recovery. That leaves the outlook dependent on how policy expectations evolve, rather than on the recent low alone.
