Dollar Hits Fresh High as Euro Slides on European Political Risk

What moved

The US Dollar Index (DXY) rose to 102.53, a fresh year-to-date high, while EUR/USD slid toward 1.1200 — its lowest level since May 2025 — after German Factory Orders collapsed 10.6% month-on-month in August, far worse than the -1% expected and a sharp reversal from July’s 2.5% gain. GBP/USD also lost ground, slipping toward 1.3200 as broad Dollar strength weighed on the Pound alongside the Euro.

Gold (XAU/USD) held above $4,160, recovering modestly after two straight weekly declines, as elevated real bond yield levels continue to cap its upside despite renewed safe-haven demand tied to Europe’s political stress. Oil extended its slide, with WTI crude trading near $89.06 a barrel, pressured by OPEC+’s decision to leave production quotas unchanged and a G7 plan to release up to 100 million barrels of strategic reserves over the next four months — though tightening global inventories and disruption to a key Red Sea shipping route kept some downside risk in check.

US equities shrugged off the weak labor market data: the S&P 500 closed at 7,773.95 (+0.66%) and the Nasdaq Composite set a fresh record at 27,477.31 (+1.05%), lifted by a wave of buyout announcements and Monday’s stronger-than-expected ISM Services PMI, which eased immediate recession fears.

Why it happened

Friday’s US employment report showed Non-Farm Payrolls rising by just 29,000 in September, far short of the 90,000 expected, while annual wage growth cooled to 3.0% from a forecast 3.2%. The CME FedWatch tool now puts the odds of the Federal Reserve holding rates steady this month at 82.3%, sharply higher than 35.8% a week earlier. That shift initially weighed on the Dollar, but the currency quickly recovered as traders weighed the Fed’s broader stance: officials have signalled they still expect as much as another 50 basis points of tightening before year-end, and core Inflation (PCE) held at 3.0% year-on-year in August, keeping the central bank’s longer-term policy path hawkish even as the near-term decision turns more cautious.

The Euro’s weakness has less to do with the Fed and more to do with Europe’s own politics. France remains gridlocked over budget reform ahead of elections due in 2027, pushing the gap between French and German government bond yield levels to its widest since 2009. Spain added to the unease by calling snap elections for November, while Germany’s coalition under Chancellor Friedrich Merz remains fragile. Against that backdrop, the European Central Bank is seen turning more dovish and cautious about further policy tightening — a view reinforced by Tuesday’s much weaker German Factory Orders data.

In commodities, Oil’s slide reflects a well-supplied near-term market, while Gold’s muted reaction shows that high real yields — not safe-haven flows — remain the dominant force in precious metals for now.

What to watch today

All times below are Saudi Arabia (KSA) time.

• 15:30US Trade Balance (August) — today, Tuesday.
• 09:00German Industrial Production (August) — Wednesday.
• 21:00FOMC Minutes, September meeting — Wednesday.
• 15:30US Initial Jobless Claims — Thursday.
• 17:00University of Michigan Consumer Sentiment, preliminary — Friday.

See the full Economic Calendar for every upcoming release and its exact time.