Euro Rebounds as Weak US Jobs Data Weighs on Dollar

The euro ended the month around $1.12, posting a monthly decline of more than 1% against the USD and hovering near its lowest level in over a year. The currency remained under pressure from concerns over France's fiscal outlook and the European Central Bank's cautious approach to further monetary tightening. Eurozone growth data released on Friday showed a slowdown in economic activity in Q3, with France unexpectedly slipping into contraction as falling exports and investment weighed on output. Social unrest added to uncertainty, pushing French OAT yields to their highest levels in over two decades, while inflation remained persistent across the region. On Thursday, the ECB kept interest rates unchanged, while avoiding firm signals about the future policy path. President Christine Lagarde confirmed that a rate hike had been discussed, but policymakers unanimously opted to hold rates steady, pointing to tighter financial conditions as a factor helping to contain price pressures.

The euro erased an earlier 0.4% decline, recovering from its weakest level since May 2025 to trade slightly higher at $1.116 after European Central Bank President Christine Lagarde revealed that an interest rate hike was discussed today and signaled another increase in December remains likely, with markets pricing in over an 80% chance of a move. Lagarde also announced that she intends to leave the ECB early, citing a desire for “greater freedom” to express views on issues beyond monetary policy. The ECB left interest rates unchanged, flagging upside inflation risks from energy prices, while Lagarde’s emphasis on stable underlying inflation and tighter financial conditions was seen by some economists as dovish. Addressing concerns over France, Lagarde said the ECB has the tools to counter unwarranted market movements. However, she noted that bond yields are rising globally and warned that highly indebted countries must prepare for higher borrowing costs.

The euro fell to $1.11, touching its weakest level since May 2025, after the European Central Bank kept interest rates unchanged. Sentiment was further weighed down by reports that President Christine Lagarde plans to step down early, alongside concerns over elevated energy costs and France’s fiscal outlook. Policymakers maintained a wait-and-see approach after raising rates twice since the Iran war disrupted energy markets. Although officials warned that inflation could approach twice the ECB’s 2% target, they have yet to see clear evidence that higher oil and gas prices are spreading to broader inflation. The ECB offered little guidance on its future rate path, with policymakers relying partly on tighter financial conditions to curb inflationary pressures. At the post-meeting press conference, Lagarde revealed that policymakers had discussed the possibility of a rate hike but ultimately agreed unanimously to leave interest rates unchanged.