Forex Today: Euro selloff picks up steam, US Dollar ignores easing rate hike bets

Here is what you need to know on Monday, October 5:

The Euro (EUR) remains under heavy selling pressure at the beginning of the week as investors grow increasingly concerned about France's fiscal outlook. The European economic calendar will feature Producer Price Index (PPI) data for September and Sentix Investor Confidence for October. Later in the day, the Institute for Supply Management (ISM) will publish the US Services Purchasing Managers' Index (PMI) for September.

Euro under pressure as fragmentation fears complicate ECB tightening path

Analysts at OCBC highlight that “rising fragmentation fears are tightening financial conditions through higher sovereign borrowing costs and wider risk premia,” with financial stability concerns increasingly competing with inflation risks. They caution that this dynamic “raises the risk that the European Central Bank (ECB) becomes more cautious on further policy tightening,” as the central bank weighs the impact of widening spreads on the broader Eurozone. Against this backdrop, OCBC notes that the Euro has come under “renewed pressure, with EURUSD falling to its weakest level since May 2025,” underscoring how fragmentation worries are feeding directly into currency weakness.

Reflecting the broad-based selling pressure surrounding the Euro, EUR/GBP falls more than 0.3%, EUR/JPY loses 0.6% and EUR/CAD declines 0.4% in the European morning.

On Friday, the US Bureau of Labor Statistics (BLS) reported that Nonfarm Payrolls (NFP) rose by 29K in September. This print followed the 133K increase recorded in August (revised from 162K) and missed the market expectation of 90K by a wide margin. Other details of the publication showed that the Unemployment Rate edged higher to 4.2% in this period, while the Labor Force Participation Rate rose to 61.8% from 61.6%.

Although the immediate reaction caused the US Dollar (USD) to weaken against its peers, it managed to regain its footing as the report also showed that annual wage inflation, as measured by the change in the Average Hourly Earnings, softened to 3%, coming in below analysts' estimate of 3.2%. Still, the probability of a 25 basis points (bps) Federal Reserve (Fed) rate hike in October declined below 20% following the employment report, as per the CME FedWatch Tool. After rising nearly 0.9% in the previous week, the USD Index stays in positive territory above 102.00 in the European session on Monday.

Economists at DBS argue that the recent “USD’s three-week rally is running out of monetary-policy fuel,” as senior Fed officials increasingly “have pushed back against expectations for a back-to-back hike at the October 28 FOMC meeting.” They note that “after softer US PCE inflation and nonfarm payrolls data, another concern is emerging,” with market attention likely to “rotate back towards the more uncomfortable reason long-dated Treasury yields are approaching pre-Global Financial Crisis highs.”

DBS stresses that “this distinction matters for the USD,” highlighting that “higher yields driven by Fed tightening can support the USD,” whereas “higher term premia driven by concerns over debt supply, fiscal sustainability, and Treasury-market credibility need not.”

Gold (XAU/USD) fell more than 3% and closed the second consecutive week in negative territory. The precious metal benefits from the risk-averse market atmosphere to start the week and clings to modest recovery gains above $4,160.

USD/JPY fluctuates in a tight channel above 157.50 in the early European session on Monday. Japanese Chief Cabinet Secretary Minoru Kihara said in a news conference during the Asian trading hours that there are no plans for a fresh release of crude oil from national reserves as the country had already released crude supplies, despite a G7 agreement to release 100 million barrels of diesel and crude from emergency reserves.