FOREX: Dollar set for strong September gains, largely at euro's expense

The dollar stood near this year's high versus the euro on Wednesday and was poised for the largest monthly rise against it in 14 months, powered by US growth and rising US interest rates in contrast to the energy and debt worries swirling in Europe.

On Tuesday, the euro EUR= dipped to its lowest since May 2025 at $1.1312, and it traded nearby at $1.1337 in Asia on Wednesday. The euro EURJPY= is also testing support around 178 yen.

The dollar is up nearly 2.5% on the euro in September and it is set to notch a third straight quarterly rise.

The stronger greenback has also pushed the Australian dollar below 70 cents for the first time since early August, with the Aussie slipping to a nine-week low of $0.6959 after inflation data came in a fraction under forecasts.

"The US economy is running hot, Europe is losing the global AI race, and energy supplies and French politics remain big concerns for the euro," said Brent Donnelly, president of foreign exchange trading at analytics firm Spectra Markets.

Earlier this month benchmark European gas prices TRNLTTFMc1 spiked to their highest since 2022.

French markets are under pressure from debt and political gridlock ahead of next year's presidential election, and the spread with German yields DE10FR10=RR has blown beyond 115 basis points to its widest since 2012.

A skew in options prices has tipped sharply in recent sessions EUR3MRR= to show traders favour buying protection against further euro falls, although Donnelly says the dollar probably needs strong US data to make headway from here.

The dollar also hit a nearly 17-month top on the Swiss franc CHF= on Tuesday at 0.8358 francs. The franc has suffered in part because investors have gone looking for low-yielding alternatives to the yen to sell in search of carry elsewhere.

The yen JPY= has fallen out of favour as a short against the dollar following US-Japan yen-buying intervention in July — which has been followed by warnings not to test their resolve — as well as a pickup in the pace of Japanese rate hikes.

The dollar has dropped 2% on the yen in September and almost 3.8% over the third quarter, touching an almost two-week low at 156.38 in Asia trade.

The Fed's preferred inflation yardstick, US core PCE, is due out later on Wednesday, though the market is more focused on Friday's US jobs report, which could reinforce expectations that US rates are on the rise.

Some of those expectations took a hit overnight when influential New York Fed President John Williams said there is "no need for urgency" in raising rates. Two-year Treasury yields US2YT=RR fell about 3.5 basis points and Fed funds futures pricing for a rate hike next month dialled back to 50% from 71%.

The New Zealand dollar NZD=, which hit its lowest since last November on Tuesday, was pinned at $0.5646. AUD/

Sterling GBP= touched a three-month trough on Tuesday and last sat nearby at $1.3237.

The yuan CNY=CFXS headed for its seventh straight quarterly gain on the dollar in its final session before China's October 1-7 holidays. CNY/

-Reporting by Tom Westbrook; Editing by Muralikumar Anantharaman, Edwina Gibbs and Kevin Buckland/Reuters