Dollar Dominance: EUR/USD Plunges Amid Rate Hike Expectations

The US dollar maintained its dominance on currency markets as the greenback rose against major rivals. The euro, in particular, suffered significant losses, with EUR/USD plummeting to around 1.15 from a high of 1.16 earlier this week. This decline is part of a broader trend, with many analysts attributing the dollar's strength to growing expectations of further interest rate hikes by the Federal Reserve.

The US Treasury yield curve continued its upward trajectory, with the 10-year yield breaching the psychologically important barrier of 5% for the first time since October 2023. While this milestone was short-lived, it reflects investors' increasing confidence in the Fed's ability to tackle inflation. Meanwhile, European swap yields surged, reaching up to 8.7 bps at the front end, a sign that investors are pricing in tighter monetary policy.

Stock markets, however, were less convincing, with tech stocks taking a hit after AI executives warned of slowing model development. The Philadelphia semiconductor index plummeted to its lowest point since February, while the broader Nasdaq suffered a 0.5% loss. European equities also underperformed, with a decline of around 1%.