Euro Stumbles as Dollar Index Hits 101.40 Amid Fed-ECB Rate Spread Widening

The EUR/USD currency pair traded at 1.1338 against the dollar late Tuesday morning in Europe, just above its year-to-date low of 1.1324 and on track for a 2.4% decline in September.

On a monthly basis, EUR/USD is down 2.16%, and over twelve months it has fallen 3.14%. The pair has now retraced the entire summer rally from the late-June low near 1.1300, and the question for the rest of the week is whether that June low holds or whether the euro prints a new 2026 low before Friday's inflation data.

The path down was orderly and it was rate-driven. Every leg of that decline maps to a leg higher in U.S. yields: the 10-year Treasury sat at 5.264% Tuesday, up 2 basis points on the day, with the 30-year at 5.589% and both near multiyear highs.

The spread between the Fed's midpoint at 3.875% and the ECB deposit rate is 137.5 basis points, and the market's forward pricing has that spread widening, not narrowing, through year-end.