On paper, the euro should be having a better month. Eurozone inflation came in hotter than expected in September, which normally raises the odds of more tightening from the European Central Bank and supports the currency. Instead, EUR/USD has slid to its lowest levels of the year, closing the week of October 9 at about 1.1227 after touching an intraday low near 1.1161 on October 5.
For forex traders, the gap between “hawkish data” and a weak currency is the story worth understanding.
Where EUR/USD stands
| Date | EUR/USD close |
|---|---|
| Jan 27, 2026 | 1.2081 (2026 high) |
| Sep 21 | 1.1464 |
| Sep 30 | 1.1330 |
| Oct 5 | 1.1223 (intraday low ~1.1161) |
| Oct 9 | 1.1227 |
That is a fall of roughly 7% from the January peak, and about 2% in the last three weeks alone.
The inflation surprise
Eurostat’s flash estimate showed eurozone headline inflation rising to 3.8% in September from 3.2% in August, above the 3.7% consensus. Prices rose 0.6% in a single month. Core inflation, which strips out energy and food, edged up to 2.5% from 2.4%.
The detail matters. Most of the jump came from energy, driven by Middle East tensions that have kept crude oil elevated. Core inflation is far calmer. Central banks tend to look through energy spikes they cannot control, so markets have not treated the headline number as a guarantee of aggressive ECB action.
Why the dollar still wins
1. The rate gap favors the US. The ECB has raised its deposit rate twice this year, to 2.50%, while the Federal Reserve’s target range sits at 3.75%–4.00% after its September hike. That leaves a short-term rate differential of about 125–150 basis points in the dollar’s favor. Investors can earn noticeably more holding dollar cash and short-term Treasuries than euro equivalents.
2. US long-term yields are near 20-year highs. The 10-year Treasury yield has traded around 5.3%, close to its highest level since 2002. High long-end yields attract global capital into dollar assets, regardless of what the ECB does next.
3. Energy shocks hurt Europe more. The eurozone is a net energy importer. Higher oil prices lift inflation but also squeeze growth, a mix that tends to weigh on the euro. The US, a major energy producer, is less exposed.
What could change the picture
The next three weeks are packed with catalysts:
- October 14 – US CPI. A soft reading would cool Fed hike expectations, currently priced at only about 20–25% for October, and could give the euro some relief.
- October 28 – Fed decision. A surprise hike would likely push EUR/USD lower; a clear signal that the Fed is done would help the euro.
- October 29 – ECB decision. Before the September inflation data, futures implied roughly a 60% chance of a hike to 2.75%. A hike paired with hawkish guidance would narrow the rate gap.
Levels traders are watching
- Support: the 1.1160–1.1200 area, this month’s lows. Below that, analysts point to the 1.1000 zone as major long-term support.
- Resistance: 1.1325–1.1350, a former support level, then around 1.1450.
Until the rate differential narrows or US yields retreat, rallies in EUR/USD are likely to meet selling pressure. A combination of softer US data and a hawkish ECB on October 29 is the clearest path to a sustained euro recovery.
Key takeaway
Hot inflation alone is not enough to lift a currency. What moves exchange rates is the relative outlook for interest rates and growth. Right now, the US still offers higher yields with less exposure to the energy shock, and that keeps the dollar in control.
Sources: Eurostat flash HICP estimate (October 2, 2026), ECB and Federal Reserve policy statements, historical EUR/USD closing rates. This article does not constitute financial advice. Forex trading involves significant risk of loss.