MediumIV Macro Policy & Sovereign Debt9 October 2026, Friday
Euro hovers near a 17-month low despite ECB tightening bias
The euro touched a 17-month low of 1.1161 against the dollar this week and traded around 1.1226 on 9 October. Most economists expect the ECB to hike in December, but the currency is tracking US rates.
FXStreet reported on 9 October that EUR/USD fell to a 17-month low of 1.1161 early in the week. Currency Solutions' assessment the same day put the pair in a 1.1226–1.1228 band, with initial support at 1.1200 and 1.1160 and resistance at 1.1280 and 1.1300. Il Sole 24 Ore's summary for 9 October showed the pair easing to 1.1194 from 1.1211 the previous day.
The ECB's tone does not explain the weakness. According to Currency Solutions, euro area inflation was 3.8% in September, almost twice the target. Most economists expect the ECB to hold its 2.50% deposit rate in October and raise it by 25 basis points in December. The Fed's policy rate, by contrast, sits in a 3.75–4.00% range and the US 10-year yield is around 5.23%. In the euro area the policy rate is 1.3 points below inflation; in the US it is above.
Pricing favours the dollar. The same source says markets assign roughly 82% odds to the Fed holding in October and about 81% to a December hike. FXStreet puts the probability of a November hike in the UK above 80%. All three central banks lean towards tightening, but the real rate differential is carrying the dollar and keeping the pair just above 1.12.
Talay assessment
Bottom line
The euro is pricing the real rate differential between the two sides, not the ECB's tightening bias. In the euro area the policy rate sits below 3.8% inflation; in the US it sits above PCE. A December hike will not close that gap. The likeliest path is the pair tracking US yields within a 1.11–1.13 band.
Likely effects
- Euro area inflationNegative1–6 months
A weak euro inflates the dollar-denominated oil and gas bill; imported energy inflation complicates the ECB's task.
- EUR/TRYNegative1–6 months
A weaker euro against the dollar reduces the dollar value of Türkiye's euro-denominated export revenue.
- European exportersPositive1–6 months
A rate around 1.12 supports the price competitiveness of European companies selling into the US.
Possibilities, ranked
- 1Pair tracks US yields55%
EUR/USD stays in a 1.11–1.13 band while the US 10-year yield moves between 5.2% and 5.35%.
Watch: The FRED 10-year real yield and the 1.1161 low in EUR/USD
- 2Low breaks25%
Strong US data push the pair below 1.1161.
Watch: US September CPI data
- 3Euro recovers20%
US employment keeps weakening, the Fed drops its December hike and the pair climbs above 1.13.
Watch: CME FedWatch December probability falling below 50%
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Market reaction
Indicators affected
- EUR/USD▼ 1.1226
- 17-month low▼ 1.1161
Historical context
EUR/USD, last 6 months
- 119/09 · France-Germany 10-year yield spread passes 100 basis points for the first time since 2012
- 223/09 · Euro area composite PMI rises to 53.1 in September, the fastest growth in about 42 months; probability of an ECB October hike rises to 48%
- 309/10 · Euro hovers near a 17-month low despite ECB tightening bias