Europe Rocked by Crisis; US Dollar Gains Ground!

The euro came under renewed pressure during trading on Monday (October 19, 2026), driven by mounting political uncertainty in France and high global energy prices. A wave of unrest that swept across France over the weekend has intensified investor concerns regarding economic stability in the Eurozone. Consequently, the euro weakened by 0.25% against the US dollar, falling to US$1.1210, while the US Dollar Index rose by 0.26% to reach 102.05.

Political tensions in France have drawn further attention after President Emmanuel Macron rejected the resignation offer of Interior Minister Laurent Nunez, following major unrest over the weekend. This uncertainty has also impacted European bond markets; the yield spread between French and German government bonds widened, at one point exceeding 150 basis points. Such a widening reflects an increased risk premium demanded by investors for holding French assets. Should the political pressure persist, market concerns could spread to other Eurozone nations, placing further downward pressure on the single European currency.

Beyond political issues, surging energy prices pose a serious challenge to the European economy. Brent crude oil remains above US$100 per barrel, while European natural gas prices have reached €89.13—their highest level in four years. The region’s heavy reliance on energy imports means that rising oil and gas costs could drive up industrial production expenses, dampen household consumption, and slow economic growth. This situation creates a dilemma for the European Central Bank (ECB), as energy-driven inflationary pressures may persist even as economic activity faces the risk of a slowdown.

Amid these pressures, market participants are once again focusing on the future monetary policy paths of both the Federal Reserve and the ECB. The market assigns an 87% probability that the Federal Reserve will keep interest rates unchanged at its October meeting, with expectations for a total of 75 basis points in easing by the end of 2027. While rising oil prices would fundamentally tend to support the US dollar, any strengthening of the currency may be limited if the Fed does not respond to inflationary pressures with more aggressive monetary policy. Consequently, the divergence in interest rate policies between the United States and Europe will be a key factor in determining the future direction of the EUR/USD pair.

Pressure is also evident in other foreign exchange markets. The Japanese yen has remained relatively stable at around 158.15 per US dollar, following signals from Bank of Japan Governor Kazuo Ueda that underlying inflation in Japan is nearing the 2% target—a development that opens the door for further interest rate hikes. Meanwhile, the Chinese yuan has strengthened after third-quarter economic growth exceeded market forecasts. In Indonesia, the rupiah remains under pressure due to growing investor concerns regarding a potential downgrade of the Indonesian stock market’s classification by MSCI. These developments underscore that geopolitical uncertainty, global energy conditions, and monetary policy remain the dominant factors shaping the movement of global currencies.

Newsmaker assesses that the weakening of the euro reflects heightened economic risks in Europe, driven by a combination of political instability in France and a surge in energy prices. Together, these factors could exert dual pressure on the eurozone: rising inflation coupled with the threat of an economic slowdown.

Source: Newsmaker.id