US Dollar Rises as Euro Faces French Political Uncertainty

Key Highlight

• Columbus Day affects US dollar settlements. US banking closures for the federal holiday will delay the settlement of USD transactions, as well as payments involving currencies that are routed or triangulated through the US dollar. Clients making international payments should factor in potential settlement delays today when planning transfers.
• The US dollar extended its winning streak. The dollar recorded its fourth consecutive weekly gain, its longest run since early 2025, supported by interest rate expectations and investors reducing exposure to the euro.
• Oil prices remain volatile. Brent crude briefly climbed above $105 a barrel following an attack on Riyadh’s main airport before easing towards $103 after President Trump claimed there was an energy ceasefire between Russia and Ukraine.
• Investor confidence in the euro weakened. A Bank of America survey showed fund managers made their largest ever monthly reduction in euro holdings, while France’s political tensions intensified with nationwide protests over the weekend.

Market Recap

UK government borrowing costs fell by around 6 basis points on Friday as lower oil prices eased concerns about inflation. However, uncertainty across Europe continued to weigh on sentiment, with France’s political crisis deepening.

Meanwhile, hedge funds have accumulated record positions betting on further dollar strength, reinforcing the currency’s recent momentum.

Market Overview

The US dollar: Oil prices continue to influence market sentiment, but the dollar’s strength is increasingly being driven by interest rate expectations and investor positioning. The Federal Reserve’s continued indication that further rate increases may be needed, alongside reduced demand for euro assets, is supporting the US currency. Although calmer oil prices could slow the dollar’s advance, they have not yet reversed the wider trend.

The euro: France’s political and fiscal uncertainty is becoming a more significant concern for investors. Record reductions in euro holdings suggest that selling pressure extends beyond short term reactions to negative headlines. While a short-term recovery remains possible, sustained improvement in French public finances could help stabilise the currency.

Sterling: The pound is benefiting from lower UK borrowing costs, but uncertainty remains. Wednesday’s US inflation figures could influence the dollar, while Thursday’s UK growth data and comments from the Bank of England Governor will be important for sterling. The impact of elevated energy prices remains another risk for the UK economy.

Euro vs US Dollar (EUR/USD)

Near term: 70% conviction of further downside.

The dollar retains a significant interest rate advantage of around 1.44 percentage points, while investors remain positioned for further euro weakness. A short term rebound is possible following the recent decline, but the broader outlook remains negative.

Medium term: 70% conviction of continued weakness.

Markets expect the Federal Reserve to continue raising rates into next year. Although the European Central Bank is also expected to tighten policy, the anticipated pace is insufficient to close the interest rate gap. A credible agreement on France’s budget could challenge this outlook.

What this means for your currency exchange: If EUR/USD recovers towards resistance, someone buying US dollars with €250,000 could receive approximately $2,350 more. If the exchange rate falls to the next reference level, they could receive around $2,650 less. For those selling US dollars to buy euros, the impact would be reversed.

Pound vs US Dollar (GBP/USD)

Near term: 70% conviction of further downside.

Sterling remains vulnerable as traders continue to position for weakness, while the dollar maintains a modest interest rate advantage. A sharper slowdown in US spending could ease some of the pressure on the pound.

Medium term: 60% conviction of further downside.

Both the Federal Reserve and the Bank of England are expected to raise rates by broadly similar amounts over the coming year, leaving neither currency with a clear advantage on interest rates alone. However, other market signals continue to favour the dollar. The UK’s exposure to higher energy prices remains a key risk for sterling.

What this means for your currency exchange: If GBP/USD rises towards resistance, someone buying US dollars with £250,000 could receive approximately $3,950 more. If the rate falls to support, they could receive around $3,550 less. For those selling US dollars to buy pounds, the impact would be reversed.

Pound vs Euro (GBP/EUR)

Near term: 70% conviction of further upside.

Sterling is trading near its strongest level against the euro in 16 months. However, following such a rapid advance, a pause or short term pullback is possible. The strength of the latest signals has eased for a second consecutive session, meaning the outlook could be reassessed if this continues.

Medium term: 70% conviction of further upside.

Markets are pricing in more Bank of England rate increases than European Central Bank increases over the next six months, supporting sterling against the euro. The UK Budget on 28 October remains a key event that could affect the outlook.

What this means for your currency exchange: If GBP/EUR falls back to support, someone buying euros with £250,000 could receive approximately €2,925 less. As the exchange rate is already near its highest level in 16 months, there is no reliable upside target provided. For those selling euros to buy pounds, the impact would be reversed.

The Bottom Line

The US dollar remains supported by interest rate expectations and strong investor positioning, while political uncertainty in France continues to weigh on the euro. Sterling is holding up against the euro, but upcoming US inflation figures and UK economic data could trigger further currency movements.

For businesses and individuals with upcoming international payments, timing remains important. Dollar buyers should monitor Wednesday’s US inflation figures, while dollar sellers and euro buyers may wish to consider securing part of their currency requirements while rates remain favourable. Thursday’s UK data could provide further direction for sterling.

At Frank eXchange Limited, we help businesses and individuals make international payments with transparent pricing and a clear view of the exchange rate before confirming a transaction. If you have an upcoming currency requirement, speak to our team to understand the rate available for your transfer.

10th October 2026

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