US Dollar Hits 17-Month High as French Turmoil Sinks the Euro

The US dollar climbed to a 17-month high this week while the euro sank to a one-year low, as political turmoil in France rattled European markets. EUR/USD touched 1.1161 — its weakest in a year — before steadying near 1.1230 into the weekend.

The trigger is Paris, not Frankfurt. France’s fragmented National Assembly is struggling to rein in the budget deficit, raising fears of deeper political polarization. The French risk premium over German bonds stretched to its widest in 15 years, and options markets are now more bearish on the euro than they have been in a long time.

Futures positioning tells the same story. In the week to October 6, speculators lifted the euro net short to its highest since 2020 — nearly 100,000 contracts, worth about $14 billion — while rebuilding long dollar positions toward multi-year highs. When hedge funds pile into one side this aggressively, reversals can be sharp, but the trend pressure is undeniable for now.

Across the Atlantic, the dollar is getting its own fuel: elevated Treasury yields, a resilient US economy, and a credibility boost for the Federal Reserve under Chair Kevin Warsh. Markets now price roughly an 85% chance of a Fed hike in December, and next month’s US midterm elections are emerging as the next volatility trigger.

What to watch in the week ahead: Germany’s ZEW sentiment survey, US housing and labor data, and whether EUR/USD holds the 1.1160 support. A sustained break below opens the door to deeper losses; a push above 1.1270 would be the first sign buyers are regaining control. Currency moves like this are why risk management matters — our forex section explains how macro news drives pairs, and the forex tools include a pip calculator to size positions on volatile pairs. (Not financial advice.)