EUR/USD extends decline as Fed rate hike bets intensify, Treasury yields surge
The euro weakened further against the dollar as rising Treasury yields and growing expectations of a Fed rate hike by year-end boosted the greenback, while geopolitical tensions added to risk aversion.
The euro extended its decline against the dollar on Wednesday, with EUR/USD falling to fresh lows as traders ramped up bets on a Federal Reserve rate hike by year-end. The move came amid a surge in US Treasury yields, which pushed the dollar broadly higher, and persistent geopolitical tensions that kept risk appetite subdued.
The dollar has remained well-supported as inflation worries and hawkish Fed rhetoric dominate market sentiment. Markets now price in roughly a 50% chance of a rate hike before December, a sharp shift from earlier expectations of steady policy. On the geopolitical front, the prolonged US-Iran standoff and the Strait of Hormuz closure continue to weigh on sentiment. US President Trump has threatened new strikes if Iran does not agree to a deal, while Tehran warns of further surprises in any renewed conflict. These factors have reinforced safe-haven demand for the greenback.
For currency traders, the divergence between a hawkish Fed and a more cautious European Central Bank is a key driver of EUR/USD weakness. Higher US real yields relative to eurozone yields widen the interest rate differential, making dollar-denominated assets more attractive. Traders can track these moves in real time on NowPrice's live FX dashboard, which provides up-to-the-second quotes on major pairs. The combination of rising yields and geopolitical uncertainty suggests the dollar could remain bid in the near term, with EUR/USD testing key support levels around 1.10.
Looking ahead, traders will focus on upcoming US economic data, including durable goods orders and the Fed's preferred inflation gauge, the PCE price index. Any upside surprises could further solidify rate hike expectations and push EUR/USD lower. On the geopolitical side, any de-escalation in US-Iran tensions could trigger a short-term dollar pullback, but the broader trend remains driven by monetary policy divergence. The 1.10 level is a critical support; a break below could open the door to a test of 1.08.