EUR/USD Rises Above 1.1300 as US Dollar Weakens on Treasury Market Turmoil

EUR/USD Rises Above 1.1300 as US Dollar Weakens on Treasury Market Turmoil

May 22, 2025 – The EUR/USD pair climbed for the third consecutive session on Wednesday, breaking above the key psychological barrier at 1.1300 as the US Dollar came under renewed pressure. The rally was driven by a combination of surging US Treasury yields and declining demand for American debt instruments, leading investors to reduce exposure to US-denominated assets.

The selloff in US Treasuries followed a lackluster auction of 20-year bonds, where yields spiked above 5% and the bid-to-cover ratio fell below its six-month average—a signal of waning confidence among investors. This triggered broad-based weakness in the Greenback, traditionally seen as a safe-haven currency, as market sentiment shifted toward risk assets, including the euro.

Contributing to the bearish outlook for the Dollar, markets are increasingly concerned about the fiscal direction of the US government. President Donald Trump's proposed federal budget, nicknamed the "beautiful, big bill," promises deep spending cuts and significant tax reductions. Analysts estimate the budget could add up to $4 trillion to the US deficit over the next decade, undermining fiscal sustainability at a time when interest rates are already elevated.

Looking ahead, markets are preparing for a key PMI (Purchasing Managers Index) data release on Thursday.

• Eurozone PMIs are expected to show modest improvement:
  • Services PMI seen rising to 50.3 from 50.1
  • Manufacturing PMI projected at 49.3, up from 49.0
• US PMIs, by contrast, are expected to be mixed:
  • Manufacturing PMI forecast to dip slightly to 50.1 from 50.2
  • Services PMI expected to hold steady at 50.8

The PMI releases could serve as the next catalyst for EUR/USD direction. A strong showing from European indicators, combined with soft US data, may strengthen the euro's hand even further in the short term.

From a technical perspective, the break above 1.1300 clears the way for potential gains toward 1.1350, with initial support seen at 1.1250 should momentum falter.