The euro lost more ground on Thursday, dropping to 1.1182 against the dollar as a global bond selloff pushed the 10-year US Treasury yield to 5.32% — a level the benchmark has not seen in more than twenty years. The pair has now shed roughly 4.4% since its August peak at 1.1708, after a fleeting Monday dip to 1.1160.
That pause did not last. Bond markets kept selling on both sides of the Atlantic. France's 10-year yield climbed above 4.86%, Italy's hit 4.70%, and the UK's 10-year tested 5.50% — while the 30-year Treasury briefly reached 5.7041%, a fresh 24-year high.
When yields rise this fast in this many places at once, investors reach for the dollar. And the euro pays for it.
The catalyst this week came from the Federal Reserve. Minutes of the September FOMC meeting, released on October 7, showed that most officials believed another interest-rate increase would likely be appropriate before the end of 2026. The September meeting had delivered a unanimous 25-basis-point hike, taking the federal funds range to 3.75–4.00%, and policymakers acknowledged they had not seen enough progress on inflation. Fed Governor Christopher Waller reinforced the message on Thursday, saying additional hikes will likely be needed to return inflation to the 2% target.
Futures markets, though, are hedging. Traders price only about a 19% chance of a hike at the October 27–28 meeting, with the odds for December sitting near 68%. That gap between the Fed's tone and market pricing is where the euro's next move likely gets decided.
Why it matters
This is not a eurozone-only story. The euro is being squeezed from two sides: a hawkish Fed that keeps the dollar bid, and a European debt market under its own stress. France's borrowing costs have become the focal point — the spread between French and German 10-year yields sits near 1.4 percentage points, a wide gap that signals investors are charging Paris a real risk premium. A rising French 10-year would normally support the euro, but when the move is driven by fiscal fear rather than growth expectations, it works in reverse. Italy's 4.70% print only deepens the sense that the continent's debt load is being repriced in real time.
The dollar's appeal is structural right now. US government debt has passed $40.2 trillion and is on track to cross $41 trillion early next year, while oil prices near $101 for Brent keep inflation risks alive. The dollar index is pressing against resistance at 102.35–102.50.
What to watch
- US CPI on October 14 — the key input for the October 27–28 FOMC decision. A hot print raises the December hike odds from here.
- FOMC meeting, October 27–28 — markets expect a hold (81% odds), but Waller-style hawkish talk could move pricing.
- EUR/USD 1.1175–1.1190 — the first support zone; a daily close below 1.1175 exposes 1.1070–1.1090.
- European bond spreads — any widening of the France–Germany gap signals fiscal stress spreading through the eurozone.
- Dollar index 102.50 — resistance overhead; a settlement above it confirms fresh dollar momentum.
Eurozone yield stress
EUR/USD levels on watch
| Zone | Price | Signal |
|---|---|---|
| First support | 1.1175–1.1190 | Holding zone from FXEmpire's Oct 7 analysis |
| Next support | 1.1070–1.1090 | Opens on a close below 1.1175 |
| 50-day moving average | Above spot | Trend structure stays bearish |
| August high | 1.1708 | Recovery target, ~4.4% above current levels |
MarketRadar take
The setup favors the dollar. The Fed minutes confirmed that most officials want at least one more hike this year, yet October pricing shows markets barely believe them — if inflation data forces the market to reprice toward the Fed, the dollar gets a second wind. Meanwhile, the euro faces a home-grown problem: when French debt fears widen spreads, the single currency loses its yield support. The German factory beat shows the eurozone economy is not dead, but one data point cannot fight a bond rout. The read here is bearish for EUR/USD while 1.1190 caps rallies.
