Euro Heads for Third Weekly Decline Amid US Rate Hike Expectations

The Euro is poised to drop for the third week in a row as investors continue to anticipate a potential interest rate hike from the Federal Reserve. The US Dollar's recent surge, driven by expectations of further tightening, has weighed on the EUR/USD pair. Despite Friday's small rebound, the currency remains vulnerable due to ongoing concerns about inflation and monetary policy.

Recent comments from Fed officials have hinted at the possibility of additional rate hikes to combat inflation, which has pushed up yields and the US Dollar. The US Dollar Index (DXY) has risen to nearly two-month highs, trading around 101. Meanwhile, the benchmark 10-year US Treasury yield hovers near 5.22%, a level not seen since 2007.

The University of Michigan's Consumer Sentiment Index rose in September, beating expectations, but inflation expectations remained unchanged. Traders are now looking ahead to next week's key data releases, including the Personal Consumption Expenditures (PCE) inflation report and the Nonfarm Payrolls (NFP) report.