Euro Slides Toward Yearly Low as High US Yields and Fed Hike Bets Lift Dollar

The euro continued its decline on Tuesday, coming close to its yearly low as high US Treasury yields and expectations of at least one more Federal Reserve rate hike lifted the dollar. The EUR/USD traded at 1.1338, just above its year-to-date low of 1.1324, and is on track for a 2.4% fall in September.

Earlier this week, Eurozone releases showed little support for the euro, with the Conference Board's Consumer Confidence Index confirming a further deterioration to -16.5 in September from -15.5 in August. While some sub-components showed improvement, such as industrial confidence rising to -3.8 from -5 and services sentiment edging up to 6.1 from 5.6, these gains were not enough to counteract the overall decline.

Slovak central bank chief Peter Kazimir stated that September's rate increase was unavoidable, while hinting at a potential repricing of European Central Bank policy in January and calling for greater flexibility. The dollar continued to outperform its peers as markets increased bets on further Fed tightening, supported by firm labor-market signals and higher yields.

As the euro remains under pressure, derivative traders are advised to prepare for continued downward pressure on the currency. Buying short-term EUR/USD put options or establishing short futures positions could help capitalize on this trend, which has already seen a 2.4% drop this month.