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(Bloomberg) -- The euro fell to its weakest level in 16 months as expectations that the Federal Reserve will further boost interest rates supported the US dollar. The common currency dropped as much as 0.5% to $1.1312 on Tuesday, the lowest since May 2025. It was set for its worst monthly performance since July 2025. “This is broad-based dollar strength on rising yields,” said Win Thin, chief economist at Bank of Nassau 1982. The US 30-year yield rose to the highest level since 2002, with nearly all currencies in the Group of 10 losing against the greenback in Tuesday trading. The euro has been on a weakening trend as the dollar appreciated on expectations that more US interest rate increases will be needed to fight inflation. While the European Central Bank is seen raising rates as well, many investors believe the US economy will be able to withstand more monetary tightening than the eurozone, accounting for the dollar’s relative strength. The Bloomberg Dollar Spot Index is up about 2% in September, with strategists expecting the US currency to extend its rally. The euro lost 2.6% against its US counterpart this month. ECB President Christine Lagarde said Monday that rising bond yields will curb economic expansion and limit the transfer of elevated energy costs to inflation. That was a “surprise dovish tilt,” said ING Groep NV currency strategist Francesco Pesole, suggesting that “if one central bank hikes in October, it will be the Fed, and not the ECB.” Options pricing points to more losses for the euro, with long-term sentiment turning the most bearish since March 2025 last week. Morgan Stanley recently revised its outlook and now expects the common currency to fall 3% versus the dollar by mid-2027. The euro is heading to $1.12 as “we expect the market to continue to add to dollar long positions, with the Fed unlikely to unwind hawkishness before the ECB,” said Macro Hive strategist Ben Ford. Some say the dollar’s rally against euro has become stretched. The relative-strength index for the pair — a measure of momentum — fell below 30 last week, an indication that it is in oversold territory. “We expect month-end rebalancing flow to be bearish for the dollar,” said Howard Du, a strategist at TD Securities in New York. “Our expectation is for the euro to consolidate higher toward $1.14 in the coming week.” --With assistance from Victor Swezey and George Lei. (Updates with comments starting from third paragraph) More stories like this are available on bloomberg.com ©2026 Bloomberg L.P. Catch all the Business News , Market News , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates. Oops! Looks like you have exceeded the limit to bookmark the image. Remove some to bookmark this image.
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