EUR/USD Falls: Why the Euro Is Under Pressure

EUR/USD Falls Below 1.12: Why the Euro Is Under Pressure

EUR/USD has fallen trading near 1.12 for the first time since May 2025, surrendering nearly five cents from its August high just above 1.1700. A combination of macro divergence, escalating European political risk, and geopolitical headwinds is driving the decline.

The primary catalyst is the widening interest-rate gap. The dollar continues to benefit from comparatively high US rates following the Federal Reserve's recent 25-basis-point hike to 4.00%. Sticky inflation and rising Treasury yields have extended the greenback's rally, pushing EUR/USD down more than 0.80% in the immediate aftermath.

Spreading European political and fiscal risk

European domestic vulnerabilities are compounding the pressure on the single currency:

French fiscal premium

French analysts highlight a growing "French fiscal premium" that investors remain unwilling to unwind.

The bond market tells the story: France's 10-year yield has climbed from roughly 3.25% in early March to near 4.90% in October, a dramatic move for a core eurozone borrower, and one that lifts the risk premium embedded in the euro itself. Interestingly, the euro failed to rebound even after soft US payrolls data temporarily dampened Fed-tightening expectations, a sign that traders are focused on bigger European risks.

France 10Y bond yield

ECB policy constraints and market stress

Widening sovereign spreads and a sell-off in European bank equities are clouding the European Central Bank's policy path. Dovish rhetoric from ECB President Christine Lagarde has further undermined sentiment, leaving markets questioning whether the central bank can hold its stance amid slowing growth and political friction across member states.

Energy and geopolitical risks for the euro

Beyond monetary policy, escalating friction in the Middle East looms large. Risks to energy flows through the Strait of Hormuz pose a direct threat to Europe, given its heavy dependence on imported energy. A supply shock could rekindle inflation without delivering a corresponding boost to growth, a stagflationary mix for the region.

What could turn the tide?

Short-term technicals suggest the move is becoming oversold, leaving room for a tactical bounce, especially with short-euro positioning having eased since mid-September. Upcoming releases — the US ISM services index and FOMC minutes — will test the dollar's momentum; another sub-50,000 payroll gain would weaken the case for further Fed hikes. Even so, a lasting euro recovery will likely require more than data surprises or ECB caution: it needs materially lower energy costs and greater clarity on European political stability.

EUR/USD technical analysis: key levels to watch

US Dollar Index

DXY has surged from the 98.50 zone, reclaimed its 200-day average at 100.17, and broken above 101.68 resistance to trade at 102.16. Price is now testing the trendline near 102.50. With RSI at 75.9 overbought, a pullback to 101.68 is possible; a hold above that level targets 104, as per analyst. 

USD index, time frame: 1D

EUR/GBP

The pair has broken down from a rising wedge to 0.8469, losing 0.8536 support, and now sits in the 0.8460–0.8475 demand zone at July's low. RSI at 25.8 is deeply oversold, so a bounce toward 0.8536 is likely according to charts; a close below 0.8450 opens 0.8400.

EURGBP, Time frame: 1D

EUR/USD

The weekly chart shows a triple top followed by a break below 1.1363 support. Price is testing the 1.10–1.12 zone, a former resistance area from 2023–24. With RSI near 34, a hold could spark a bounce toward 1.1363, while a weekly close below 1.1000 targets 1.0800.

EURUSD, Time frame: 1D