The dollar opened the fourth quarter at its highest level in more than three months, and EUR/USD slipped below 1.1300 as elevated Treasury yields kept the greenback supported. The pair also dropped through 1.13 for the first time since May 2025, extending a selloff that carried over from the third quarter.
Dollar draws strength from Treasury yields
The U.S. 10-year Treasury yield reached around 5.34% overnight before retreating to around 5.28% in the morning snapshot. That level marked its highest since 2002, and the third quarter produced the largest quarterly rise in the 10-year yield since 1994, a move that has not reversed with the new quarter.
Softer August PCE inflation had already reduced conviction in another Fed hike in October, yet the long end of the curve refused to rally. As a result, the dollar index extended toward 102, marking its sixth consecutive quarterly gain entering Q4. In the early-morning currency snapshot, EUR/USD traded at 1.1289, with the dollar higher by 0.34%.
Euro slides despite firmer European data
The euro's decline came even though European manufacturing readings beat forecasts. The eurozone final manufacturing PMI printed at 52.9 versus 52.7 expected, with Germany, France, Italy and Spain all topping estimates. The improved figures have nevertheless not stopped EUR/USD from moving lower.
EUR/USD fell nearly 2.5% in September, its largest monthly drop since July of the previous year. Rising European bond yields, higher energy costs and political uncertainty continue to act as a headwind, leaving the euro caught between higher domestic borrowing costs and a terms-of-trade disadvantage from expensive imported energy.
Oil adds to the inflation pressure
Crude oil was trading at $92.18, up $1.76, in the early-morning snapshot. Meanwhile, Brent moved back above $100 as fuel-supply concerns intensified. Restricted supply keeps inflation risk alive, which in turn keeps pressure on long-duration bonds and reinforces dollar strength.
Traders now turn to the ISM manufacturing PMI, expected at 54.8 versus a prior 54.6, as the first test of whether the pattern can break. Friday's jobs report follows as a larger test still ahead.
Sources: InvestingLive, ActionForex
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