Dollar set for September rise, mainly at euro's expense

By Tom Westbrook

SINGAPORE, Sept 30 (Reuters) - The dollar stood near this year's high versus the euro on Wednesday and was poised for the largest monthly rise against it for 14 months, powered by US growth and rising US interest rates in contrast to the energy and debt worries swirling in Europe.

Overnight, the euro dipped to its lowest since May 2025, at $1.1312, and traded nearby at $1.1339 in Asia. The euro is also testing support around 178 yen.

Through September the dollar is up nearly 2.5% on the euro, and the rising greenback also pushed its Australian counterpart below 70 cents for the first time since early August.

"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 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 has blown beyond 115 basis points to its widest since 2012.

The skew in options prices has tipped sharply in recent sessions to favour buying protection against further euro falls — though Donnelly says the dollar probably needs strong US data to make further headway from here.

The dollar also made a 16-1/2-month top on the Swiss franc overnight at 0.8358 francs. The franc has suffered, in part, because investors have gone looking for low-yielding alternatives to yen to sell in search of carry elsewhere.

The yen has fallen out of favour as a short against the dollar following US-Japan yen buying in July and August, 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 fallen 1.5% on the yen in September.

DATA TO LEAD

The Fed's preferred inflation yardstick, US core PCE, is due out later on Wednesday though the market is focused on Friday's US jobs report which, if strong, could reinforce expectations that US interest 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 fell about 3.5 basis points and Fed funds futures pricing for a rate hike next month dialled back to 50% from 71%.

Australian inflation figures due later on Wednesday could lend support to the Aussie, which slipped after Reserve Bank of Australia Governor Michele Bullock said the board discussed holding rates before announcing Tuesday's 25-bp hike.

"The risk is another hike by the RBA, possibly as soon as the next policy meeting in November. However, another hike is already priced in by markets," said Commonwealth Bank of Australia's head of foreign exchange, Joe Capurso.

"We still consider the next big move in AUD/USD is down not up," he said. The Australian dollar hovered around $0.6986 early in the Asia session, 20 pips above its overnight low, and the New Zealand dollar, which hit its lowest since last November overnight, was pinned at $0.5638. [AUD/]

Sterling touched a three-month trough on Tuesday and last sat nearby at $1.3227. The yuan 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)