Euro approaches yearly lows at 1.1324 against an unstoppable US Dollar

The Euro (EUR) keeps heading lower on Tuesday as a mix of high US Treasury yields, strong US macroeconomic data, and hopes of further Federal Reserve (Fed) rate hikes underpins speculative support for the US Dollar. The EUR/USD pair trades at 1.1338, a few pips above Year-to-Date (YTD) lows at 1.1324, and on track for a 2.4% monthly decline in September.

Eurozone data released earlier in the day has failed to provide any significant support to the common currency. The Conference Board’s Consumer Confidence Index confirmed preliminary data showing a deterioration to -16.5 in September from -15.5 in August, with the Economic sentiment easing to 97.9, from 98.4 in August. Industrial Confidence improved to -3.8 from -5 in the previous month, and the Services sentiment ticked up to 6.1 from 5.6 in August.

Beyond that, the European Central Bank board member and President of the National Bank of Slovakia (NBS), Peter Kazimir, affirmed that September’s rate hike was unavoidable but asked for more flexibility and pointed to January for ECB's monetary policy repricing.

Fed tightening hopes, US yields keep fuelling US Dollar’s rally

The US Dollar, on the other hand, is outperforming its peers, buoyed by a mix of strong fundamentals, high US Treasury yields and rising bets that the Federal Reserve will tighten its monetary policy further at least one more time before the end of the year.

Strategists at OCBC highlight that recent US jobless claims “have continued to trend lower,” indicating that labour market conditions remain firm and raising “the risk of an upside payrolls surprise.”

They argue that a stronger-than-expected employment report would “reinforce expectations of further Fed tightening, keep Treasury yields elevated and provide additional support for the USD.” Against this backdrop, OCBC foresees “a moderate USD rally into year-end,” even as they caution that markets are currently “pricing almost four Fed rate hikes over the next year,” a path they deem “overly aggressive unless demand-driven inflation re-emerges as the dominant force behind price pressures.”