The U.S. dollar climbed to a 17-month high against the euro on Thursday as a broad selloff in government bonds pushed yields higher across the United States and Europe.
Rising oil prices also added to inflation concerns, supporting higher bond yields and increasing demand for the dollar.
Euro Falls to Lowest Level Since May 2025
The euro briefly dropped below $1.123, marking its weakest level against the U.S. dollar since May 2025.
EUR/USD was last down around 0.79% at $1.1238. The euro also lost nearly 2.5% during September, recording its largest monthly decline since July 2025.
Meanwhile, the U.S. dollar has strengthened significantly in recent months as Treasury yields have moved sharply higher.
Rising Bond Yields Support the Dollar
One of the main drivers behind the dollar rally has been the surge in global bond yields.
Concerns over government finances, rising energy prices and persistent inflation have increased selling pressure across bond markets.
Investors have also continued to assess the possibility that major central banks could keep monetary policy tight for longer.
Higher U.S. yields tend to increase the appeal of dollar-denominated assets, providing additional support for the greenback.
U.S. 10-Year Treasury Yield Reaches New Peak
The yield on the benchmark U.S. 10-year Treasury note climbed to its highest level since 2002 during Thursday’s session.
It later eased slightly to around 5.27%, but remained at historically elevated levels.
The rise in Treasury yields has played a major role in strengthening the U.S. dollar against several major currencies.
European Bond Markets Face Pressure
European bond markets have also experienced heavy selling.
French government bond yields climbed to another 14-year high amid continued concerns over the country’s fiscal position. German government debt also came under pressure.
The euro weakened not only against the dollar but also against the Japanese yen and Swiss franc.
Against the British pound, the euro traded near its weakest level since late June.
Inflation Remains a Key Market Risk
Recent U.S. inflation data showed price growth rising less than expected in August. Previous figures for July were also revised lower.
The softer data reduced some expectations for an immediate Federal Reserve rate increase.
However, inflation in the eurozone accelerated, highlighting the continued risk posed by higher energy prices.
Oil-market strength remains especially important because sustained increases in energy costs could keep inflation elevated across major economies.
Dollar Extends Strong Quarterly Run
The U.S. dollar completed its sixth consecutive quarterly gain against a basket of major currencies at the end of September.
That represents its longest winning streak since 2022, when U.S. interest rates were rising faster than rates in many other major economies.
The U.S. Dollar Index was up around 0.57% during Thursday’s session after reaching its highest level since April 2025.
Global Bond Selloff Adds to Market Volatility
Global bond markets recorded one of their largest monthly declines in years during September.
Concerns over deteriorating government finances, heavy debt issuance and persistent inflation all contributed to the selloff.
As bond prices fell, yields moved higher, increasing volatility across foreign exchange and broader financial markets.
Pound, Yen and Australian Dollar Also Weaken
The British pound fell around 0.54% to $1.3192 after losing approximately 2.1% during September.
The Japanese yen also weakened against the U.S. dollar, with USD/JPY trading near 157.6.
Meanwhile, the Australian dollar fell to a two-month low near $0.6904 after domestic inflation data came in below expectations.
For now, the combination of rising bond yields, inflation concerns and strong demand for dollar assets continues to support the U.S. dollar, while the euro and several other major currencies remain under pressure.
