The euro was trading around 1.1380 on Thursday, close to its lowest level in two months, after falling nearly 2% in less than a fortnight. Pressure came from firmer US data, rising Treasury yields and a rebound in crude. Preliminary US S&P PMI readings showed business activity expanding at its fastest pace in more than five years, with jobs and wages rising quickly as input prices jumped alongside higher energy costs.
Federal Reserve Policy and Treasury Yields
Markets also digested signals of further Federal Reserve tightening, with policy framed around returning inflation to 2%. A poorly received five-year US Treasury auction pushed yields higher, and the benchmark 10-year rate moved above 5% to 5.135%, the highest level in 19 years, supporting the dollar.
Oil Prices and Eurozone Growth Outlook
Oil added another headwind: prices rose about 5% from Tuesday’s lows, with Brent at $98.50 and nearing $100, a mix that can weigh on Eurozone growth while complicating the inflation outlook. The Fed holds eight policy meetings a year via the FOMC, which comprises 12 officials, and can deploy QE or QT to influence financial conditions and the dollar.
