EUR/USD hits monthly high near 1.1850 even as Treasury-yields rise

EUR/USD is gaining altitude, with the US dollar struggling to draw bids despite the uptick in the treasury yields and dovish European Central Bank (ECB) expectations. 

The pair is currently trading at 1.1847, the highest level since Sept. 21, having picked up a bid below 1.17 on Oct. 15. 

US yields rise, but dollar drops

The US 10-year treasury yield is hovering at 0.81%, the highest level in over four months. The benchmark yield has gained 12 basis points since hitting a low of 0.69% on Oct. 15. 

Further, the spread between the US and German 10-year bond yields has increased to a seven-month high of 141.8 basis points. 

So far, however, rising borrowing costs and yield differential has been ignored by forex traders. The dollar index, which tracks the greenback's value against majors, is down nearly 0.9% this week, and EUR/USD has gathered upside steam, as noted earlier. 

The yields are rising along with stocks amid renewed expectations for an additional US fiscal stimulus deal, which would cause the widening of the already record budgetary gap. 

And while markets are currently cheering the risk-on by offering the safe-haven dollar, the focus may shift to rising yields after some time, following which EUR/USD would come under pressure - more so, as the ECB is expected to ramp up stimulus in December.

The US-Eurozone inflation differential has recently widened, with the common currency bloc's inflation falling into the negative territory. Put simply, the ECB is under pressure to do more.

The data calendar is light on Wednesday. ECB's President Lagare is likely to sound dovish during her speech at 07:30 GMT. During the US session, the focus will be on Federal Reserve's Chairman Powell's speech. 

Technical levels