Dollar's resilience tested as EUR/USD defies U.S. Treasury Yield surge

EUR/USD has defied market expectations, rallying above its 10- and 21-day moving averages on Thursday. This unexpected resilience came at a time when U.S. Treasury yields reached fresh up-trend highs, with 2-year yields hitting a 13-year peak and 10-year yields nearing the psychological threshold of 5.0%.

The dollar’s failure to capitalize on the yield surge hints at a growing sense of unease among investors. It raises concerns that the U.S. economy might be heading towards turbulent waters as tightening financial conditions in the bond market take hold.

While the weekly jobless claims data came in below expectations, the increase in continuing claims exceeded forecasts, sending mixed signals about the health of the job market. This uncertainty could be a sign that the labor market is losing steam.

In addition to the labor market concerns, the housing sector is showing signs of weakness. Existing home sales slumped to a 13-year low in September, and mortgage applications dropped to their lowest point since 1995. Experts attribute this housing market weakness to soaring mortgage rates, which recently touched 8.0%.

Investors’ growing skepticism about the dollar suggests a willingness to consider the possibility of a U.S. recession on the horizon. It also raises the likelihood that the Federal Reserve may have to adjust its tightening policies sooner than previously anticipated.

If investor sentiment continues to lean towards U.S. economic weakness, the upside risks for the EUR/USD currency pair are set to increase.