EUR/USD Rebound Tied to Treasury Yields Below 5%

EUR/USD rose 0.24% to 1.1492 on Thursday. The pair had touched 1.1460 in early Asian trading. This level marks a seven-week low. The recovery followed a 1.2% decline since September 11. That drop erased 150 pips from the euro in four sessions. A $100,000 position lost $1,360 in value during that period. The dollar index hit 100.37 before easing to 100.08. The euro's decline matched the dollar's gain almost exactly. This indicates the move was driven by Washington policy, not Frankfurt.

Both the Federal Reserve and the European Central Bank raised rates by 25 basis points. The policy rate spread remains unchanged. The market now prices 75 basis points of additional Fed hikes by next June. The ECB has not committed to further moves. Traders are betting on this divergence in expected paths. As long as U.S. yields stay under 5% and oil prices fall, the euro can target 1.1610. A return of the 10-year Treasury yield above 5% would push the pair back through 1.1460.

Fed Hike Signals Hawkish Path

The Federal Reserve raised its benchmark rate to a 3.75%-4.00% range. The decision was unanimous. The policy statement removed language linking inflation to energy supply shocks. It stated the action supports a timelier return to the 2% goal. This wording change removes the argument that the Fed ignores oil-driven inflation. That had been the most favorable scenario for the euro.

The dot plot showed 16 of 18 policymakers expect at least one more hike by year-end. The median federal funds rate projection for end-2026 rose to 4.1% from 3.8%. Officials also lifted projections for 2027 and 2028. Markets expected a one-off response to energy prices. They received a signal of a sustained tightening cycle. Chair Kevin Warsh described the hike as removing accommodation. He noted inflation has been too high for too long.

Dollar Weakens Across Currencies

The dollar fell 0.25% against the euro. It dropped 0.39% against the yen. The Swiss franc gained 0.37% against the dollar. The Australian dollar rose 0.43%. The New Zealand dollar climbed 0.51%. The British pound fell 0.07% after the Bank of England held rates. The euro's gain is part of a broad dollar retreat. It is not a euro-specific story.

Technical Indicators Show Oversold Conditions

EUR/USD sits below its 100-day moving average. It is also beneath the lower Bollinger Band. The 14-day relative strength index is near 31.9. This reading is close to oversold territory. It does not confirm the decline is over. It does increase the risk of a sharp short-covering bounce. The 32-pip rebound from 1.1460 to 1.1492 is the first sign of that move. GN auto markets/bonds: treasury yields data supports this technical view.