1.1265: Euro hits yearly lows amid high Oil prices, rising US yields and debt woes

• EUR/USD drops below 1.1300 for the first time since May last year, on track to complete a four-week sell-off.
• High US Treasury yields, rising Crude prices and concerns about France's debt are crushing the Euro this week.
• Softer-than-expected US PCE inflation data has failed to halt the Dollar's rally.
  

The Euro (EUR) extends losses for the fourth consecutive day against the US Dollar (USD), reaching levels below 1.1300 for the first time since May 2025. The combination of higher Oil prices, rising US Treasury yields, and market concerns about France’s government debt has crushed the EUR/USD, hitting lows at 1.1265 on Thursday, set to complete around 2.8% selloff in the last four weeks.

The upward revision to the Euro Area’s manufacturing activity figures, released earlier on Thursday, has failed to provide any significant support to the Euro. 

Eurozone HCOB Manufacturing Purchasing Managers Index (PMI) has been upgraded to 52.9 from the 52.7 preliminary estimate, with new orders rising at their fastest pace in more than four years, employment and purchasing activity improving further, and output expectations rising to their highest level since February. Likewise, Manufacturing PMIs for Germany, France and Italy beat expectations in September, all showing stronger business activity levels.

Investors' sentiment, however, remains grim, as Brent Oil rises above the key $100 level, posing significant pressure on the Eurozone’s growth. In France, public debt has reached its highest level since 1946, with a gridlock in the government hampering any relevant savings plan, which has raised concerns about a debt crisis.

Higher US yields have offset soft US PCE inflation data

In the US, surging Treasury yields keep fuelling speculative support for the US Dollar, as the uncertainty around the Middle East conflict keeps boosting global inflation higher. The yield on the benchmark 10-year note reached fresh 24-year highs above 5.30 on Wednesday, while the return for the 30-year bond hit 5.65, also its highest level since May 2002.

Against this background, the softer-than-expected US Personal Consumption Expenditures (PCE) Price Index failed to dent the US Dollar’s strength. PCE inflation grew less than expected in September, according to data released by the US Bureau of Economic Analysis. August’s data was also revised lower, which prompted futures markets to dial down hopes of back-to-back interest rate hikes by the Federal Reserve (Fed).

Looking ahead, Analysts at ING argue that, “barring some breakthrough in US-Iran negotiations, it looks like the Dollar will stay bid in October,” and warn that “an upside breakout is a possibility should tomorrow's US data surprise on the upside or should the sell-off in European government debt start to heavily weigh on the Euro.”