Daily Market View | Blog By David Stritch, Senior Multicurrency Analyst, Caxton | Thursday 8 October 2026
The euro remains under pressure because two crises are hitting it at once. A fresh tanker attack in the Gulf has pushed European gas prices to around €80 per megawatt hour, while France still has no clear path to passing a budget. That leaves the European Central Bank stuck, and EUR/USD down almost 4.7% so far this year.
Key takeaways
Iran attacked a tanker in the Gulf yesterday, the first such strike for several weeks, as Tehran tries to reassert control over oil flows through the region. Oil and gas both moved higher on the news.
The backdrop matters. Gulf shipping has been disrupted since the conflict between Iran and US–Israeli forces began on 28 February, and Iran has targeted multiple vessels in and around the Strait of Hormuz. Markets had grown used to a quieter few weeks. Yesterday's strike was a reminder that the risk premium in energy prices hasn't gone away.
For Europe, the bigger story is gas. Front-month Dutch TTF, the European benchmark, has climbed to around €80/MWh. It started the year below €30, so prices have nearly tripled in nine months, with most of that rise coming since July.
Europe imports most of its energy, so higher gas prices act like a tax on the whole eurozone economy. They push inflation up while dragging growth down, which is the worst combination for a central bank.
That puts the ECB in a genuinely difficult position. Before the French budget crisis, it had been preparing to tighten policy. Markets had been expecting the ECB to lift its key rate by at least 25 basis points this year, and energy inflation strengthens the case for that.
The problem is France. Higher rates would push up European bond yields, and French government bonds (known as OATs) are already under strain. France's 10-year OAT yield closed at 4.48% on 14 September, a level not seen since 2008. Tightening into that risks pushing French borrowing costs into panic territory.
Holding rates, on the other hand, risks letting energy-fuelled inflation run through the eurozone economy. Neither option is comfortable, and currency markets don't like a central bank with no good choices.
Very little, which is the problem. Betting markets currently give the National Assembly around a 50% chance of passing a budget before the end of the year.
French lawmakers seem to have lost sight of how much it would help simply to appear to be moving towards a resolution. Instead, attention has been pulled towards the ongoing and intensifying student protests. Each week without progress adds to the risk premium investors demand for holding French debt, and by extension, the euro.
At 7:30am this morning, the main rates were:
| Pair | Rate | 1 day | 1 month | Year to date |
|---|---|---|---|---|
| GBP/USD | 1.3214 | -0.09% | -2.50% | -2.03% |
| EUR/USD | 1.1197 | -0.02% | -3.69% | -4.69% |
| GBP/EUR | 1.1802 | +0.08% | ||
| USD/JPY | 158.08 | -0.08% | -2.67% | -0.94% |
| GBP/AUD | 1.8977 | -0.04% | -1.18% | +6.35% |
| GBP/CAD | 1.8838 | +0.16% | -0.75% | -1.69% |
The euro has fallen further against the dollar than sterling has, both over the past month and this year. It has managed to claw its way just off recent lows against both the pound and the dollar, but that bounce is fragile.
Three things: energy prices, French politics and the UK Budget.
Any further attacks on Gulf shipping would likely push gas higher again and add to the pressure on the euro. In France, any sign of compromise in the Assembly would ease pressure on OATs. And closer to home, the UK Autumn Budget is set for Wednesday 28 October. With three weeks to go, there's been very little indication of its shape, which leaves room for sterling volatility as details emerge. cambridgenetwork
If you pay or receive euros, the range of possible outcomes is wide right now. A French budget deal could give the euro a lift; an escalation in the Gulf could knock it lower.
A forward contract, which fixes an exchange rate today for a payment at a later date, is one way to take timing risk off the table for known future payments.
My read is that the euro is being squeezed from two sides, and only one of them is in Europe's control. The ECB can't do much about the Gulf. France could, at least, give markets a reason to believe a budget is coming. Until it does, the euro's small recovery off its lows looks more like a pause than a turn. The worst may yet be to come if these crises don't calm down quickly.
Why do gas prices affect the euro?
The eurozone imports most of its energy, so higher gas prices raise inflation and slow growth at the same time. That weakens the economic outlook and complicates the ECB's decisions, both of which weigh on the currency.
Will the ECB raise interest rates?
The ECB had been expected to tighten policy this year, but the French budget crisis makes that harder. Raising rates could push French borrowing costs sharply higher, so the bank faces a trade-off between fighting inflation and protecting bond markets.
What is an OAT?
An OAT is a French government bond. Rising OAT yields mean France is paying more to borrow, which is a sign investors see greater risk in lending to it.
When is the UK Autumn Budget 2026?
The Budget will be delivered on Wednesday 28 October 2026. Markets have little detail so far on what it will contain.
Is now a good time to buy euros?
No one can say for certain where rates will go next. If you have a payment coming up, it can help to speak with a specialist about options such as forward contracts or rate alerts.
If you have euro payments or receipts coming up, Caxton's multicurrency dealers can talk you through your options for managing currency risk, from forward contracts to rate alerts. Get in touch with the team for a conversation about what fits your business.
Please be aware the rates above represent the market rate at 7:30am. Contact your Caxton dealer or check online for a live quote.
This article is for information only and does not constitute financial advice. Exchange rates can move quickly and past performance is not a guide to future performance.