- EUR/USD fell below 1.13 on October 1, reaching its lowest level since May 2025 as investors continued to sell European assets.
- The US dollar strengthened as the 10-year Treasury yield hit 5.342%, its highest level since 2002, despite softer US inflation reducing expectations for an October Federal Reserve rate hike.
- Higher oil prices, rising eurozone inflation and political and fiscal uncertainty in Europe are weighing on the euro outlook, with US payroll data now the next major catalyst.
EUR/USD fell to a 17-month low on Thursday, October 1, as surging US Treasury yields strengthened the dollar while higher energy costs and growing political uncertainty weighed on the euro.
The euro dollar exchange rate slipped below 1.13 for the first time since May 2025, falling around 0.35% to $1.1291 during Thursday’s European session. The decline extends a difficult period for the single currency after EUR/USD lost nearly 2.5% in September, its biggest monthly fall since July 2025.
Reuters reported that the euro also weakened against the Japanese yen and Swiss franc, while falling to its lowest level against the British pound since late June.
Why Is EUR/USD Falling Today?
The latest EUR/USD decline reflects pressure from both sides of the currency pair. The dollar has benefited from rapidly rising US bond yields. Meanwhile, the euro is being squeezed by Europe’s exposure to high energy prices, accelerating inflation in parts of the eurozone and renewed political and fiscal concerns.
The US Dollar Index rose about 0.3% on Thursday and traded around its highest level since mid-May. The dollar also completed a sixth consecutive quarterly gain in September, its longest winning streak since 2022. That combination has pushed the EUR/USD exchange rate through the closely watched 1.13 level.
US Dollar Rises as Treasury Yield Hits 24-Year High
The US dollar outlook is being driven increasingly by the bond market rather than expectations for the Federal Reserve’s next move. The benchmark 10-year US Treasury yield reached 5.342% on Thursday, its highest level since early 2002. It also recorded its largest quarterly increase of the 21st century during the third quarter.
Government bond yields are rising globally as investors respond to inflation concerns, heavy government borrowing and elevated interest rates. Higher oil prices have added another inflationary risk. Reuters reported that US, French, British and Japanese government borrowing costs have all reached multi-decade highs.
Higher US yields can support the dollar by making dollar-denominated assets relatively more attractive, adding further pressure on EUR/USD.
Why Is the Euro Falling Against the Dollar?
Europe faces an additional problem: expensive energy. Higher oil prices threaten growth while simultaneously increasing inflation, creating a difficult environment for the European Central Bank.
Eurozone inflation has accelerated more quickly than expected in some of the bloc’s largest economies. Yet the prospect of additional ECB tightening has so far failed to provide meaningful support for the euro price against the dollar. Political and fiscal concerns are also contributing to the weakness.
French government bond yields have surged as investors focus on the country’s finances and political uncertainty ahead of next year’s election. Reuters reported that French yields have reached 14-year highs, while German government debt has also faced selling pressure.
Rabobank’s head of FX strategy Jane Foley told Reuters that Europe’s growth risks, its position as an energy importer and crowded long-euro positioning have all prevented the currency from gaining traction despite tighter ECB policy.
Fed Rate Hike Bets Fall Despite Stronger US Dollar
One unusual feature of the current EUR/USD outlook is that the dollar is strengthening even as expectations for an immediate Federal Reserve rate hike ease.
US inflation data released Wednesday showed prices increased less than economists had expected in August, while July’s figures were revised lower. That reduced expectations for another Fed increase in October.
Normally, lower rate-hike expectations could weaken the dollar. This time, however, soaring longer-term Treasury yields are providing separate support.
National Australia Bank FX strategist Ray Attrill told Reuters that the dollar currently appears more sensitive to movements in the 10-year Treasury yield than to expectations surrounding the timing of the next Fed increase.
EUR/USD Forecast: Can the Euro Recover Above 1.13?
The immediate EUR/USD forecast remains under pressure after the break below 1.13. A sustained move back above 1.13 would be the first sign that selling pressure is easing, while failure to reclaim the level could keep the euro vulnerable to further weakness.
The next major test comes from Friday’s US September employment report. Payroll and wage data could reshape expectations for the Federal Reserve and move Treasury yields, making the release an important catalyst for both the US dollar and EUR/USD. For now, the combination of high US yields, energy-driven pressure on Europe and political uncertainty leaves the dollar with the upper hand heading into the US jobs report.
EUR/USD is falling as rising US Treasury yields support the dollar while high energy prices, inflation and political uncertainty weigh on European assets.
The dollar is benefiting from higher US Treasury yields. The 10-year yield reached 5.342%, its highest level in 24 years.
Near-term EUR/USD direction is likely to depend heavily on US bond yields, Friday’s jobs report, Fed expectations, European inflation and oil prices.