Frankfurt, Germany – The euro has plunged to a 12-month low against the US dollar following the latest US inflation data, indicating continued downward pressure on the euro in the face of stronger US economic indicators and the political resurgence of former President Donald Trump. Market experts predict that these trends could keep the euro in a weakened position relative to the dollar for the foreseeable future.
Euro Declines as US Inflation Soars
After the United States reported a surge in inflation for October, the EUR/USD exchange rate dropped to 1.0546 early Thursday, marking its lowest point since November 2023. Since late September, the euro has declined by 5.7% against the dollar, driven by rising inflation in the US and Trump’s recent electoral success.
The inflation spike, paired with the Republican Party’s majority in the House, has bolstered the dollar. With stronger chances of Trump’s policies becoming enacted, concerns over inflation have mounted, causing a rise in US Treasury yields and consequently increasing the dollar’s strength.
Inflation Trends Point to Strong Dollar Trajectory
US inflation grew by 2.6% year-over-year in October, up from 2.4% the previous month, recording the first rise since March. Core inflation, which excludes food and energy, increased by 0.3% month-over-month and 3.6% annually. Although the Federal Reserve is still expected to cut rates in December, persistent inflation levels might lead to only a modest rate reduction.
In September, the Fed implemented a 50 basis-point cut amid concerns over labor market conditions, which briefly weakened the dollar and lifted the euro. However, with resilient employment data and steady inflation, the dollar has since gained renewed momentum.
Rising Treasury Yields Add to Dollar’s Appeal
The surge in inflation expectations has also lifted US Treasury yields, with the 10-year yield reaching 4.47%, its highest since July. Long-term Treasury yields, in particular, reflect market confidence in the US economy’s growth potential, adding further weight to the dollar’s value against other currencies.
Michael McCarthy, COO and market strategist at Moomoo Australia, anticipates further dollar appreciation as Treasury yields climb. “High Treasury yields could keep driving investor interest in USD assets, even if recent stock market momentum slows,” McCarthy said.
Euro Outlook Remains Uncertain Amid Economic and Political Challenges
Europe’s currency is also grappling with its own economic and political challenges. Rising US trade tensions with key European partners, particularly the EU and China, could dampen the euro’s strength. Although a weaker euro might aid European exporters, any sustained recovery remains uncertain.
Stay tuned as we continue to monitor currency trends and market shifts impacting the euro, the dollar, and global economic stability. Share your views on these developments and their potential impact on Europe’s economy below.
