FX Weekly: Yield Surge Pushes EUR/USD Lower
EUR/USD hits 2026 lows, US yields jump and a December Fed hike is priced in: the weekly review of the currency markets.
Key takeaways
- EUR/USD slides to fresh 2026 lows; our momentum snapshot shows 1.1028 US dollars.
- US yields surge: the two-year yield sits at 4.855 percent, up from 4.46.
- A Fed hike in December is priced in at roughly 89 percent.
No currency pair told a story this week without interest rates. The dollar gains because investors expect a tougher Fed, the euro loses, and the yen is once again at a level where Japan's central bank has stepped in before.
Euro: rate gap widens, yearly low breaks
The shift is clearest in EUR/USD. StoneX analyst David Scutt calculates that the pair fell 0.80 percent over four trading days. By his account, a model based on the rate differential would have implied 0.77 percent, so the move is largely explained. The gap between US and eurozone forward rates widened by a good 14 basis points since last Friday.
The ECB is also seen as active: according to Finanzmarktwelt, a December rate move is priced in at about 94 percent. Still, the US side dominates the market. Scutt names 1.1250 as resistance and 1.0900 as the next downside target. The price in our snapshot has already moved past his support levels at 1.1113 and 1.1065.
Bonds set the pace for the dollar
Behind the dollar's strength is the bond market. Finanzmarktwelt author Stefan Jäger describes how the ten-year US yield climbed from about 4.82 to 5.13 percent, while the two-year went from 4.46 to 4.855 percent. Scutt considers the two-year move historically rare, nearly 36 basis points in four sessions. The US dollar index (DXY) gained 0.85 percent over the same period, and it tracked yields closely: the correlation was 0.68 (two-year) and 0.75 (ten-year).
Price data did not ease the pressure. US consumer prices rose 0.4 percent in October, a touch more than expected; the core rate of 0.3 percent topped the forecast of 0.2 percent. Fed Governor Christopher Waller backs 25 basis points on December 9 and considers 50 conceivable. Producer prices on Friday came in at 0.3 percent, just under the expected 0.4 percent; year over year they stand at 6.5 percent, with the core rate at 5.0 percent. Finanzmarktwelt considers this irrelevant for December.
Yen: 160 as the test
StoneX's Fawad Razaqzada sees USD/JPY at 160 and notes that the Bank of Japan has intervened there before. The test ended in a pullback of about 100 pips, which buyers absorbed. He still watches 157.25 as the last low before the rally and roughly 163 as the next hurdle.
What momentum says
Momentum signals a bearish reading for EUR/USD across 1h, 4h, 1D and 1W. That matches the rate and yield gap of the week; it says nothing about duration.
Scenarios
If the rise in yields continues, StoneX sees the zone around 1.0900 coming closer for EUR/USD. If the bond market calms, 1.1250 is the first mark where a recovery would have to prove itself. For USD/JPY, the area around 160 decides whether the uptrend holds or intervention risk weighs more.
Outlook
On Monday the Fed chair speaks; Tuesday brings US retail sales and Nvidia's earnings. The FOMC minutes follow on Wednesday and will show how many members back a larger hike.