The EUR/USD exchange rate has faced significant pressure, hitting its lowest point since early July, as the US Dollar experiences a substantial rally. This decline in the EURO is primarily attributed to a surge in US bond yields, which is bolstered by rising enthusiasm surrounding former President Donald Trump’s potential return to power. Expectations of his victory may trigger inflationary tariffs and concerns about increased deficit spending, leading to heightened volatility in the currency pair.
As the dollar gains momentum, the EUR/USD dipped to the 1.0720 – 1.0715 range during the Asian trading session. Although there was a slight recovery, with the pair trading just above the mid-1.0700s, it still reflects a 1.50% decline for the day. The sharp increase in US Treasury yields, particularly the benchmark ten-year bond rates which spiked to 4.44%, underscores the bullish sentiment for the USD and points to the challenges facing the EURO .
Despite this bearish sentiment for the EURO , the current risk-on environment in global equity markets has tempered some of the dollar’s gains. The likelihood of a less aggressive stance from the Federal Reserve has kept traders cautious about making new bets on the dollar, which has, in turn, limited further declines in the EUR/USD exchange rate.
Looking at the economic backdrop in the Eurozone, recent data has indicated inflation rising to 2% in October, alongside better-than-expected GDP growth figures from leading economies. These developments suggest that the European Central Bank is likely to stick to a moderate rate cut of 25 basis points in December, providing some support to the EURO . However, unless the EUR/USD can maintain stability above the 1.0800 level, the overall trend appears to be leaning toward a continued decline.
