1.1265: Euro hits yearly lows amid high Oil prices, rising US yields and debt woes

EUR/USD drops below 1.1300 for the first time since May last year, on track to complete a four-week sell-off.
High US Treasury yields, rising Crude prices and concerns about France's debt are crushing the Euro this week.
Softer-than-expected US PCE inflation data has failed to halt the Dollar's rally.

Guillermo Alcala FXStreet

The Euro (EUR) extends losses for the fourth consecutive day against the US Dollar (USD), reaching levels below 1.1300 for the first time since May 2025. The combination of higher Oil prices, rising US Treasury yields, and market concerns about France’s government debt has crushed the EUR/USD, hitting lows at 1.1265 on Thursday, set to complete around 2.8% selloff in the last four weeks.

The upward revision to the Euro Area’s manufacturing activity figures, released earlier on Thursday, has failed to provide any significant support to the Euro.

Eurozone HCOB Manufacturing Purchasing Managers Index (PMI) has been upgraded to 52.9 from the 52.7 preliminary estimate, with new orders rising at their fastest pace in more than four years, employment and purchasing activity improving further, and output expectations rising to their highest level since February. Likewise, Manufacturing PMIs for Germany, France and Italy beat expectations in September, all showing stronger business activity levels.

Investors' sentiment, however, remains grim, as Brent Oil rises above the key $100 level, posing significant pressure on the Eurozone’s growth. In France, public debt has reached its highest level since 1946, with a gridlock in the government hampering any relevant savings plan, which has raised concerns about a debt crisis.

Higher US yields have offset soft US PCE inflation data

In the US, surging Treasury yields keep fuelling speculative support for the US Dollar, as the uncertainty around the Middle East conflict keeps boosting global inflation higher. The yield on the benchmark 10-year note reached fresh 24-year highs above 5.30 on Wednesday, while the return for the 30-year bond hit 5.65, also its highest level since May 2002.

Against this background, the softer-than-expected US Personal Consumption Expenditures (PCE) Price Index failed to dent the US Dollar’s strength. PCE inflation grew less than expected in September, according to data released by the US Bureau of Economic Analysis. August’s data was also revised lower, which prompted futures markets to dial down hopes of back-to-back interest rate hikes by the Federal Reserve (Fed).

Looking ahead, Analysts at ING argue that, “barring some breakthrough in US-Iran negotiations, it looks like the Dollar will stay bid in October,” and warn that “an upside breakout is a possibility should tomorrow's US data surprise on the upside or should the sell-off in European government debt start to heavily weigh on the Euro.”

Economic Indicator

HCOB Manufacturing PMI

The Manufacturing Purchasing Managers Index (PMI), released on a monthly basis by S&P Global and Hamburg Commercial Bank (HCOB), is a leading indicator gauging business activity in the Eurozone manufacturing sector. The data is derived from surveys of senior executives at private-sector companies from the manufacturing sector. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation. The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the manufacturing economy is generally expanding, a bullish sign for the Euro (EUR). Meanwhile, a reading below 50 signals that activity among goods producers is generally declining, which is seen as bearish for EUR.

Economic Indicator

HCOB Manufacturing PMI

The Manufacturing Purchasing Managers Index (PMI), released on a monthly basis by S&P Global and Hamburg Commercial Bank (HCOB), is a leading indicator gauging business activity in Germany’s manufacturing sector. The data is derived from surveys of senior executives at private-sector companies. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation. As Europe’s main manufacturing hub, German PMI data can also be a bellwether of the sector’s health in the broader continent. The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the manufacturing economy is generally expanding, a bullish sign for the Euro (EUR). Meanwhile, a reading below 50 signals that activity among goods producers is generally declining, which is seen as bearish for EUR.

AUD/USD holds above 0.6950 as bullish USD caps gains

AUD/USD edges lower during the Asian session on Tuesday, stalling a two-day recovery move from a two-month low, touched last week. An extended rout in the fixed income market keeps US bond yields elevated near multi-year highs. This, along with geopolitical uncertainties, helps the US Dollar retain its bullish tone despite receding October Fed hike bets. However, expectations for another RBA rate hike this month could act as a tailwind for the Aussie.

USD/JPY rises back above 158.00 despite hawkish BoJ outlook

USD/JPY rises back above 158.00 in the early European morning on Tuesday. The pair strengthens as the Japanese Yen fails to find any inspiration from hawkish BoJ expectations and looming intervention risks. Meanwhile, geopolitical uncertainty and elevated US bond yields keep the US Dollar near its YTD high despite receding October Fed hike bets. This, in turn, helps the pair stay supported.

Gold recovers further from two-month low amid some USD profit-taking

Gold builds on its modest intraday bounce from the $4,100 neighborhood, or a two-month low, and climbs above $4,150 during the first half of the European session. The US Dollar pauses for a breather following the recent strong rally from the September monthly swing low and offers some support to the precious metal. Adding to this, receding bets on an October Fed rate hike benefit the non-yielding bullion.

Ripple and Stellar weaken as derivatives positioning fades

Ripple (XRP) and Stellar (XLM) face pressure trading below $1.499 and $0.220, respectively, on Tuesday after a modest correction at the start of the week. Traders should be cautious as weakening derivatives metrics and fading bullish momentum suggest further corrections for XRP and XLM. Derivatives data shows a weakening and cautious signal among traders.

Europe in focus as French and Spanish politics drive sentiment

There are no tier-1 releases today. Focus will remain on developments in the European markets and geopolitical developments in the Middle East. In France, the key issue in the coming days will be whether the Socialists and Marine Le Pen's National Rally signal they are willing to topple the government over the budget.

Eurozone inflation just hit 3.8%, its highest in three years. This chart shows why the ECB can’t simply hike its way out

The ECB would normally have a relatively straightforward answer to inflation running almost twice its target: raise interest rates. But these are not normal circumstances. This time, the bond market is already doing part of the tightening for it, leaving the ECB facing an increasingly difficult dilemma.