Euro hits fresh yearly low as strong US data keeps Fed tightening in play

The US Dollar has strengthened to its highest level since May 2025, with the Euro slipping to its lowest level all year, as per data released on Thursday. The EUR/USD pair is trading at approximately 1.1253, marking a decline of 0.67% for the day. Meanwhile, the US Dollar Index (DXY), which gauges the Greenback against a basket of six major currencies, has reached a fresh year-to-date high at around 101.96.

The 10-year US Treasury yield is near 5.30%, close to the 5.34% peak observed earlier in the day, the highest level since 2002. The ISM Manufacturing PMI for September rose to 54.5, slightly below the anticipated 55, but still above the 50 threshold, indicating expansion. The Prices Paid Index jumped to 77.9, surpassing expectations of 72.3.

Employment data in the US remains robust, with initial jobless claims dropping to 197K, below the forecast of 200K and the previous 198K. The four-week average also fell to 200K, according to the report.

Despite these strong economic indicators, traders view the likelihood of the Federal Reserve raising interest rates at its October meeting at around 36%, as the core personal consumption expenditures inflation rose by 0.2% month-over-month in August, falling short of the 0.3% forecast. However, the annual rate remains unchanged at 3.0%, undershooting the 3.3% expectation. Inflation remains above the Fed's 2% target, with energy prices adding to the upside risks due to ongoing US-Iran negotiations.

Meanwhile, Eurozone manufacturing activity has shown modest growth, with the final HCOB Manufacturing PMI rising to 52.9 in September from 52.7, its highest level since May 2022. However, policymakers have also indicated potential downside risks to growth, which could keep the European Central Bank cautious about raising rates aggressively.