MORGANABLE BUSINESS /MARKETS
The US dollar is heading for a fourth consecutive weekly gain against the euro, supported by elevated US Treasury yields, pressure in European bond markets
Akure —
The US dollar is heading for a fourth consecutive weekly gain against the euro, supported by elevated US Treasury yields, pressure in European bond markets and expectations that the Federal Reserve will keep a firm stance on interest rates.
Reuters reported on October 2 that the greenback remained on course for another weekly advance. The move came even after fresh US employment data showed weaker job growth than economists expected. Investors, however, continued to focus on the gap between US and European borrowing costs.
The euro was last up 0.39% at $1.1285. Despite that daily rise, the single currency remained on track for its fourth straight weekly loss against the dollar. That would be its longest losing streak since mid-May 2025, highlighting the recent shift in currency-market sentiment.
One major support for the dollar has been the US Treasury market. The benchmark 10-year Treasury yield slipped after the latest employment report but remained high at 5.191%. Consequently, investors continued to see US assets as attractive because they offered relatively high returns.
The employment report nevertheless changed some expectations about the Federal Reserve. US job growth in September fell short of economists’ forecasts, while the unemployment rate edged up to 4.2%. As a result, traders increased their expectations that the central bank could leave interest rates unchanged at its next meeting.
Markets were pricing an 86% chance of a Fed rate hold later in October, compared with 36% a week earlier. That sharp change showed how quickly economic data can influence expectations. Still, the dollar remained supported because Treasury yields stayed near multi-decade highs.
The latest jobs figures also gave investors a mixed picture of the US economy. Slower hiring can reduce pressure on the Federal Reserve to raise rates. At the same time, resilient economic activity could prevent policymakers from quickly shifting toward lower rates. Therefore, traders are watching incoming data closely.
Meanwhile, concerns about European government finances have placed additional pressure on the euro. French and Italian government bonds have faced selling pressure in recent weeks. Investors are concerned about rising borrowing costs, fiscal challenges and political risks as major elections approach in 2027.
France has drawn particular attention. Its 10-year government bond yield jumped to its highest level since 2002 on Thursday. In addition, the premium over German 10-year bonds rose above 150 basis points on Friday. That was the highest level since late 2011.
Italy has also faced pressure in its bond market. Higher borrowing costs can make it more expensive for governments to service debt. Consequently, investors are paying closer attention to fiscal policies across the eurozone. Those concerns have contributed to the euro’s recent weakness.
Oil prices have added another challenge for the single currency. Higher crude prices can increase import costs for economies that rely heavily on energy from abroad. The eurozone is a major energy importer, so rising oil prices can put pressure on its trade balance and economic outlook.
The same trend has affected the Japanese yen. Investors have reduced exposure to currencies of major energy-importing economies as crude prices have risen. This has provided another source of support for the dollar, which is also benefiting from its role as a major global reserve currency.
The dollar has also gained against other major currencies. It weakened 0.49% against the Swiss franc on Friday but remained on course for a sixth consecutive weekly gain. That would be its longest winning streak against the franc since November 2024.
Against the Japanese yen, the dollar fell 0.33% to 157.55. However, it was still heading for a third straight weekly increase. The dollar index, which measures the greenback against a basket of major currencies, fell 0.29% to 101.68 but remained on course for its third weekly gain.
These movements show that the dollar’s strength is broader than its performance against the euro. Investors are responding to several factors at once, including interest-rate expectations, government bond yields, energy prices and concerns about public finances in Europe.
The Federal Reserve remains central to the outlook. The US central bank raised rates and signalled further increases after its September policy meeting. However, recent comments from Fed officials have encouraged traders to wait for more evidence before assuming another increase will happen this month.
That approach could keep currency markets volatile. If US inflation remains strong, traders may again price in higher rates and push Treasury yields upward.
Conversely, weaker economic data could reinforce expectations that the Fed will pause, potentially reducing some of the dollar’s recent support.
Europe faces its own policy challenge. Eurozone inflation could rise in the coming months, partly because of higher energy costs. That situation could increase pressure on the European Central Bank to consider further rate increases, even as concerns about government finances remain.
For now, investors are balancing those competing pressures. Higher European rates could support the euro, but concerns about public debt and political uncertainty could limit its appeal.
Meanwhile, high US yields continue to give the dollar an advantage despite the weaker American employment figures.
The currency market will therefore remain sensitive to upcoming economic data. Investors will monitor inflation, employment, consumer spending and other indicators for clues about the next moves from both central banks. Bond yields will also remain important because they influence the returns available from different currencies.
For now, the dollar remains on course for another weekly gain against the euro. The combination of high US Treasury yields, European fiscal concerns and changing interest-rate expectations has kept demand for the greenback firm.
However, the outlook is not fixed. The latest US jobs data has already changed market expectations, showing that fresh economic information can quickly reshape currency trading.
As investors await the next round of data, the dollar-euro exchange rate will continue to reflect the changing balance between US economic resilience and Europe’s financial pressures, especially as central banks reassess their policy paths and outlooks.
