The euro slides to a 17-month low despite two ECB hikes
French fiscal worries hit the CAC 40 while the dollar rose with Treasury yields.
What happened
EUR/USD fell to 1.1161 on October 5, a 17-month low, as the dollar index rose 0.4% to about 102.5. The CAC 40 fell 0.80% on French fiscal worries while the Stoxx 600 rose 0.36%. The ECB raised rates by 25 basis points on September 10, taking the deposit rate to 2.50%, and the Bank of England held at 3.75% in a 6-3 vote with three members preferring a hike.
Sources: Investing.com, European Central Bank, The Irish Times, Bank of England. Details
Why it matters
Rate hikes usually support a currency, but the US yield rise has been larger, and fiscal risk in France adds a political premium to euro assets. French bank stocks and the spread over German bonds are the channels to watch.
What history shows
After 23 ECB hikes since 1999, EUR/USD averaged -0.21% over the following 20 trading days, and the CAC 40 averaged +0.87%.
In our data the CAC 40 is -7.62% over three months and -10.22% below its 52-week high.
Seasonal backdrop
October has been one of the CAC 40's strongest months, averaging +1.75% with gains in 72% of 36 years. EUR/USD has no clear October pattern (average -0.28%).
Scenarios
Possible paths and the signs that would point to each. No probabilities. Testable ones are graded on the scorecard.
Fiscal fears ease
A budget compromise in Paris narrows spreads and French stocks catch up with their seasonal record.
- Narrowing OAT-Bund spread
- Budget agreement
Dollar strength continues
US yields keep rising faster than euro yields and the euro extends its slide.
- Widening US-German yield gap
What to watch
- French budget debate
- November 5: Bank of England decision
Sources and method (4)
- The US dollar index rose 0.4% to about 102.5 on October 5 and EUR/USD fell to 1.1161, a 17-month low. Investing.com, Oct 5
- The ECB raised its three key rates by 25 basis points on September 10, taking the deposit facility rate to 2.50% from September 16. Staff project headline inflation of 3.0% for 2026. European Central Bank, Sep 10
- The CAC 40 fell 0.80% on October 5 on French fiscal worries while the Stoxx 600 rose 0.36%. The Irish Times, Oct 5
- The Bank of England held Bank Rate at 3.75% in a 6-3 vote, with three members preferring 4.0%. UK CPI inflation was 3.1% in August. The next decision is on November 5. Bank of England, Sep 17