Euro Falls as Rising Energy Prices, Unrest in France Weigh on Currency

The euro fell against the US dollar on Monday as rising energy prices and political unrest in France heightened concerns about the economic outlook for the eurozone.

According to Reuters, the euro declined by 0.20 per cent to $1.1218, while the US dollar index rose by 0.10 per cent to 101.87.

The decline came after riots and looting in France over the weekend intensified concerns about political stability in the eurozone’s second-largest economy.

French Prime Minister Sébastien Lecornu said on Monday that he had asked some local authorities to introduce partial curfews in response to the unrest.

Analysts said the impact of France’s political difficulties on the euro would depend on whether the crisis spread to other eurozone countries and undermined investor confidence across the region.

Earlier in October, the euro weakened significantly after the difference between French and German government bond yields widened by approximately 40 basis points to more than 150 basis points within days. The spread stood at 144 basis points on Monday.

Meanwhile, rising energy prices have added to concerns about inflation and economic growth across Europe.

European natural gas prices climbed to a four-year high of €89.74, while Brent crude oil prices retreated from a five-month high but remained above $100 per barrel.

Higher oil prices have supported the US dollar since the conflict involving Iran began in March, while putting pressure on energy-importing currencies, including the euro and Japanese yen.

However, investors are increasingly reassessing the factors supporting the dollar, following stronger US economic growth and gains in technology stocks driven by investments in artificial intelligence.

Concerns that spending on artificial intelligence could weaken if investment prospects deteriorate have also raised questions about future US economic growth and borrowing requirements.

Thu Lan Nguyen, head of foreign exchange and commodity research at Commerzbank, said the impact of higher oil prices on the euro-dollar exchange rate would depend largely on how the US Federal Reserve and the European Central Bank responded to inflationary pressures.

She said the dollar could struggle to benefit fully from rising oil prices if investors did not expect the Federal Reserve to adopt a significantly more aggressive approach to controlling inflation.

Market participants were pricing in an 85 per cent probability that the Federal Reserve would leave interest rates unchanged at its October meeting.

They also anticipated a cumulative 75 basis points in rate cuts by the end of 2027.

Expectations regarding the European Central Bank’s interest-rate policy have followed a similar pattern.

In other currency markets, the US dollar rose by 0.12 per cent against the Japanese yen to 158.20 yen.

Bank of Japan Governor Kazuo Ueda said on Monday that there was room for further interest-rate increases, adding that gradual adjustments could help prevent sudden increases in government bond yields.

However, concerns over Japanese Prime Minister Sanae Takaichi’s spending plans continued to weigh on the yen, amid fears that additional expenditure could worsen the country’s public debt burden.

Naomi Fink, chief global strategist at Amova Asset Management, said pressure from bond and currency markets could push the Bank of Japan towards faster monetary policy normalisation.

She added that the government would face pressure to identify clear funding sources for its spending plans.

The US dollar, meanwhile, fell by 0.05 per cent against the offshore Chinese yuan to 6.6815, its weakest level since June 2022.

The yuan strengthened after data showed that China’s economy grew slightly faster than expected in the third quarter.

The Australian dollar also appreciated by 0.64 per cent to $0.6988.

Investors are expected to continue monitoring energy prices, political developments in France and decisions by major central banks as they assess the outlook for global currencies and the broader economy.

Join us on our WhatsApp Platform @KOIKIMEDIA NEWS YOUR PAGE

Koikimedia Bringing the World 🌎 Closer to Your Doorstep