The key facts

  • The euro fell to $1,111 (a low since mid-May 2025) and £0.842 (a low since early June 2025), losing more than 5% since late August
  • The spread between French and German 10-year bond yields exceeded 150 bps — the highest since the debt crisis around 2011; France's public debt reached a record 119% of GDP
  • US inflation is 3.7%, eurozone inflation 3.8% (a three-year high); the Fed may raise rates on October 28, the ECB on October 29 or in December

Euro's Fall Despite ECB Policy Tightening

On Wednesday, October 15, 2026, the euro fell to about $1.111 — its lowest level since mid-May 2025 and below the low first reached at the beginning of the month. In early trading on Thursday, the rate rebounded to around $1.121. Since late August, the single currency has lost more than 5%, fully erasing its summer recovery. Against the British pound, the euro traded at about £0.842 on Wednesday — its lowest since early June 2025 — and returned to 0.846 on Thursday. The decline since late September has been about 2%. According to Euronews, pressure on the exchange rate comes from rapidly rising energy prices, a "revolt" in the bond market over the state of French public finances, and the strengthening of the US dollar. The fall is happening despite the ECB having already raised rates twice this year, which usually supports a currency.

Strong Dollar and Rate Gap

The euro's weakening partly reflects the dollar's strength: the dollar index against major currencies hit an 18-month high on Wednesday after US inflation in September rose to 3.7%, exceeding forecasts. These data roughly doubled traders' bets on a Fed rate hike on October 28; the Fed's base range already stands at 3.75–4% versus the ECB's 2.5%. On September 10, the ECB raised its deposit rate by a quarter point to 2.5% for the second time this year, responding to the energy shock from the war involving Iran: Europe imports most of its energy and therefore suffers more than the US from the surge in oil prices. Eurozone inflation has since risen to 3.8% — a three-year high. Markets expect the ECB to hold rates on October 29 and raise them in December. Governor of the National Bank of Belgium Pierre Wunsch told Bloomberg: "Most likely, we will have to raise rates again." Bundesbank President Joachim Nagel was more cautious: "there are not yet clear signs that inflation has passed through to prices and wages." In the UK, strong economic data reinforced expectations of a Bank of England rate hike in November, supporting the pound.

French Debt Crisis and Political Turbulence

The spread between French and German 10-year bond yields exceeded 150 basis points at the beginning of the month — the highest since the eurozone debt crisis around 2011. France's public debt at the end of June 2026 reached a record 119% of GDP (about €3.59 trillion) — twice the EU threshold of 60%, according to INSEE data. The 2027 budget, which provides for savings of about €54 billion and a reduction of the deficit to 5% of GDP from the expected 5.4% this year, is struggling through a divided parliament: debates began on Tuesday amid student protests demanding additional government spending on education. ECB President Christine Lagarde said on the sidelines of the annual IMF and World Bank meeting in Bangkok: "The main and primary solution lies in France, at home […] and relates to fiscal policy," lowering expectations of help from the central bank. Additional uncertainty is added by early elections in Spain, scheduled for November 29. Next, investors await final eurozone inflation data on Friday, the Fed's decision on October 28, and the ECB's decision a day later.