US Dollar Forecast: EUR/USD Slides with Widening Yield Gap, Bitcoin Rally Stalls

U.S. Dollar Rises as Yields Climb, Bitcoin Hits Three-Month High

The U.S. Dollar Index (DXY) started the week on a positive note, gaining momentum as U.S. Treasury yields pushed higher. Traders are watching closely as the DXY hovers around key resistance at the 200-day moving average of 103.785, which capped gains last week. If the index breaks through this level, further bullish action could follow, supported by rising yields. On the downside, 103.144 remains a key pivot support.

Treasury Yields Support Dollar Strength

Higher U.S. Treasury yields continue to provide strong support for the dollar. The 10-year Treasury yield rose to 4.128% on Monday, reflecting market expectations for tighter financial conditions and a higher-for-longer Federal Reserve policy stance. Investors are anticipating signals from several Federal Reserve officials scheduled to speak this week, which could provide further insights into the central bank’s next steps.

With limited economic data releases this week, the focus is on corporate earnings and any hints from Fed officials regarding rate policy. The correlation between rising U.S. yields and a stronger dollar has remained strong, pushing the greenback higher against its major peers.

Bitcoin Reaches Three-Month High on Trump Prospects

In the cryptocurrency space, Bitcoin rallied to a three-month high, peaking at $69,400 in early Monday trading. The surge is linked to improving odds of former President Donald Trump winning the upcoming U.S. election. A Trump victory is expected to result in more lenient regulatory policies on cryptocurrencies, contributing to Bitcoin’s upward momentum. Since October 10, Bitcoin has gained approximately 18%, signaling strong market sentiment toward the asset.

Euro, Yen Struggle as Dollar Gains

The euro and yen continued to weaken against the dollar. The euro, now down over 3% in the past three weeks, fell to $1.0849, while the yen hovered near 149.89 per dollar. Traders are eyeing the widening yield gap between U.S. Treasuries and European and Japanese bonds, particularly with German yields falling as U.S. yields rise. This divergence further cements the dollar’s position as the stronger currency.

Analysts note that the U.S. dollar’s strength is largely driven by solid U.S. economic data, with GDP growth and retail sales exceeding expectations. In contrast, Europe’s economy is under pressure, as reflected by the European Central Bank’s dovish stance and recent data showing falling German producer prices.

Market Forecast: Dollar to Extend Gains Ahead of Election

Looking ahead, the U.S. dollar is likely to maintain its upward trajectory, especially as U.S. Treasury yields continue to climb. With the U.S. presidential election just two weeks away, uncertainty remains high, particularly regarding potential policy shifts under a Trump administration. Traders are expected to increase their long dollar positions, especially against the euro, yen, and Mexican peso, as a hedge against election-related volatility.

In the short term, the DXY may test and potentially break the 200-day moving average at 103.785, with continued support from strong yields and economic data. Bitcoin’s rally could persist, but much will depend on evolving election outcomes and the broader risk sentiment in global markets.