Euro Slides to 17-Month Low as 10-Year Treasury Yield Jumps to 5.34%, Lifting Dollar

The euro sank to its weakest level in 17 months as a sharp rise in U.S. Treasury yields strengthened the dollar and widened the divergence between U.S. and European financial conditions. EUR/USD fell below $1.123, while the U.S. Dollar Index rose about 0.6%. The catalyst was a spike in the U.S. 10-year Treasury yield, which briefly hit 5.34%, the highest level since 2002. The move is significant because the euro carries the largest weight in the Dollar Index, meaning euro weakness can amplify broader dollar gains and further tighten conditions for commodities, emerging markets and other dollar-sensitive assets. The dominant driver remains the U.S. yield advantage. Higher Treasury yields boost the potential return on dollar-denominated assets, drawing global capital toward the U.S. and supporting dollar demand. The 10-year yield touched 5.342%, extending a bond selloff that delivered the biggest quarterly increase in yields since 1994. That channel helps explain why Treasury swings can ripple through currencies, equities and crypto even without an immediate change in Federal Reserve policy rates. Europe is also contending with its own bond-market strains. French 10-year yields have moved toward 5% as investors focus on fiscal risks, and spreads versus German debt have widened. Long-term borrowing costs in the UK and Japan have also climbed to multi-decade highs. Brent crude near $100 is adding to inflation pressure across energy-importing economies. The combination of higher oil prices and rising Treasury yields has already weighed on several currencies globally, reinforcing the dollar's appeal during risk-off periods. The euro's near-term path hinges largely on whether U.S. yields stay above 5%. A meaningful drop in Treasury yields could narrow the dollar's advantage and open the door for a EUR/USD rebound. Softer U.S. inflation has cooled expectations for an imminent Fed rate hike, but longer-term yields remain driven by inflation risk, government borrowing needs and heavy bond supply.