The euro weakened to $1.145 against the dollar, hovering just below $1.15 and down about 1% for the week, its weakest level since late July. The slide coincided with a rebound in Brent crude, which rose after touching its lowest point since September 10, keeping energy markets in focus.
German political risk added pressure. The governing Christian Democratic Union (CDU) suffered its worst-ever state‑election result in Mecklenburg‑Western Pomerania, failing to win a single seat, and trailed the Left party in Berlin, which captured 25.7% of the vote. The setbacks followed a recent loss to the far‑right Alternative for Germany (AfD) in Saxony‑Anhalt, prompting calls within the CDU for Chancellor Friedrich Merz to resign after 16 months in office.
In France, the budget deficit remains above 5% of GDP. Rating agencies responded: Scope Ratings cut France’s rating, while Morningstar DBRS shifted its outlook to negative ahead of next year’s presidential election, underscoring fiscal concerns in the euro area.
Monetary‑policy dynamics also shaped the euro’s trajectory. The Federal Reserve raised the federal‑funds target range to 3.75%‑4.00%, its first hike since July 2023, and signaled further increases later in the year, bolstering the dollar. Money markets priced the European Central Bank’s deposit rate just under 2.9% by December, implying roughly a 50% chance of another ECB hike this year. The Bank of England left rates unchanged but warned that a prolonged Middle‑East conflict could prompt tighter policy, while the Bank of Japan lifted rates to a 31‑year high and indicated more tightening ahead.
