EUR/USD extended losses on Thursday to its lowest level since May 2025 and a fresh year-to-date low, with the pair near 1.1253 and down 0.67% on the session. The US Dollar stayed underpinned by higher yields and firm data: the Dollar Index (DXY) rose to 101.96, while the 10-year US Treasury yield traded around 5.30% after touching 5.34%, its highest level since 2002.
In US data, the ISM Manufacturing PMI eased to 54.5 in September from 54.6, below the 55 forecast, while the Prices Paid Index jumped to 77.9 from 71.1 versus expectations of 72.3. Initial Jobless Claims fell to 197K from 198K, under the 200K forecast, and the four-week average slipped to 200K from 202.5K; ADP showed private payrolls rising 90K in September versus 70K expected, up from 36K in August. Core PCE inflation rose 0.2% month-on-month in August against a 0.3% forecast, with the annual rate steady at 3.0% versus 3.3% expected; CME FedWatch pricing put October hike odds around 36%. In Europe, the final HCOB Manufacturing PMI ticked up to 52.9 from 52.7, while markets looked to Friday’s preliminary Eurozone inflation and US Nonfarm Payrolls releases.
US Dollar Strength And Trading Implications
We expect the US Dollar to maintain its upward momentum in the coming weeks as treasury yields hover near multi-decade highs. With the US 10-year yield resting at 5.30%, elevated borrowing costs are supporting a stronger greenback, reminiscent of the high-rate environment we last saw in 2002. Derivative traders should look to align their strategies with this strong dollar trend, especially by targeting further weakness in the EUR/USD pair.
However, we must prepare for short-term volatility with the upcoming US Nonfarm Payrolls and Eurozone inflation data. Historically, strong US jobs data reinforces dollar dominance, but any surprise miss could cause temporary pullbacks that offer better entry points for short positions. We suggest using limited-risk option strategies, like bear puts, to protect against these immediate data releases.
Inflation Pressures And Policy Divergence
Sticky inflation pressures, shown by the US Prices Paid Index jumping to 77.9, indicate that the Federal Reserve will keep interest rates higher for longer. During similar periods of high energy risks, such as the market pressures of late 2023, the dollar consistently outperformed its European counterparts. We believe trading strategies should account for this persistent inflation, which will likely keep the Euro capped below key resistance levels.
While the Eurozone’s manufacturing PMI rose to 52.9, the region’s economic growth remains too fragile for aggressive rate hikes. This economic divergence means the yield gap between the US and Europe will continue to widen. We advise utilizing currency futures or spreads to capture this widening yield differential over the next month.
