The euro rose to $1.1206 Thursday morning after hitting its weakest level since May 2025. U.S. inflation kept Fed rate bets elevated as France's budget fight added pressure.
On Oct. 14, hotter-than-expected U.S. inflation figures pushed traders to expect Federal Reserve policy to stay restrictive. By midweek, the euro had fallen to $1.1113, its weakest level since May 2025, before recovering to $1.1206 on Thursday morning.
The bounce offered some relief, but the forces behind the decline had not let up. Currency traders were watching the prospect of higher U.S. rates alongside renewed concern about France's public finances, according to dpa-AFX.
Inflation reset rate expectations
The midweek slide followed U.S. inflation figures that came in above forecasts. On Oct. 14, the Bureau of Labor Statistics reported that the Consumer Price Index rose 0.6% in September, after a 0.4% increase in August. Annual inflation reached 3.7%, up from 3.4%. Core CPI, which excludes food and energy, rose 0.3% for the month and 2.6% over the year, compared with 2.4% in August. The September CPI report also showed gasoline prices up 7.1% for the month. Inflation had remained above the Fed's 2% target since March 2021.
The figures strengthened expectations that the Fed would keep policy restrictive. That can support the dollar against the euro if investors expect U.S. rates to stay higher. In September, the Fed raised its target range for the federal funds rate by 25 basis points to 3.75%-4.00%. It was the Fed's first rate increase in three years, and officials signaled that further increases were possible. Before the CPI release, markets put the chance of a hike at the Oct. 27-28 meeting at about 22%. The inflation report did not confirm an October move.
Antje Praefcke, a currency strategist at Commerzbank, said the market's first reaction to the September inflation figures was to expect the Fed to remain restrictive. Positive U.S. economic data in the days ahead could keep rate expectations elevated, she said, though the Fed might still hold rates steady in October. That is Praefcke's assessment, not an announcement of what the Fed will do.
The exchange-rate move was sharp: from $1.1113 at its midweek low to $1.1206 on Thursday morning. The earlier level was the euro's weakest since May 2025. These are reported exchange-rate points, not a closing price or a forecast.
France adds budget risk
France's budget debate has added another source of pressure. The French National Assembly officially began debate on the national budget on Oct. 13. Prime Minister Sébastien Lecornu's government had presented its 2027 budget proposal to the Council of Ministers on Oct. 1, before parliamentary committee consideration and the plenary debate. The proposal includes €43 billion in new budget measures. The government is targeting a deficit of 5% of GDP in 2027. The National Assembly debate was continuing, and final budget terms had not been approved.
Praefcke expected the process to continue through year-end. She pointed to an early obstacle: the Socialists had tried to block the debate on its first day. A difficult budget process could keep investor concern about France's public finances in focus.
Praefcke also said the student protest movement could intensify over the weekend. That was a risk she identified, not a confirmed escalation. The budget dispute and possible protests could prolong negative news from France and weigh on sentiment toward the euro.
What the exchange rate means
For U.S. readers, the quote shows how many dollars one euro buys. At $1.1206, a U.S. traveler exchanging dollars for euros would get fewer euros for each dollar than at a higher rate, before fees and any exchange-provider markup. The rate alone does not determine the final cost of a trip or imported goods, but it affects the dollar price of euro-priced purchases.
Currency moves also affect investors with overseas holdings. When a U.S. investor converts euro-denominated returns back into dollars, the exchange rate changes the amount received in dollars. That exposure is separate from the performance of the underlying investment. A related discussion of portfolio risk appears in this ETF risk analysis, which addresses funds rather than this specific currency move.
An exchange rate is the price of one currency in another. It shifts as market participants reassess interest rates, with economic data and political risks also affecting their expectations. Those expectations can move before central banks change policy, so a shift in the exchange rate does not confirm that a hike or cut will follow. The euro's latest rebound came after a sharp decline, while expectations for restrictive U.S. policy and concern over France continued to weigh on it.
