Euro breaks below 1.13 and the dollar index hits a yearly high

The dollar index set a new yearly high on Thursday and EUR/USD fell below 1.13 for the first time since May 2025, as the bond selloff carried into the fourth quarter. The yen fell about 0.5% against the dollar in European trading and still topped our strength table for a second straight session.

What the data showed

• The ISM manufacturing index slipped to 54.5 from 54.6, below the 55.0 forecast, though prices paid jumped to 77.9, the highest since May, according to investingLive. Initial jobless claims fell to 197,000 from a revised 198,000, against a 200,000 consensus cited by investingLive, and construction spending rose 0.9% in August against a 0.0% forecast. FXStreet read the day's data as solid manufacturing activity and a firm labour market.

• Switzerland's CPI was flat on the month (0.0%), as forecast, after 0.4% the month before. USD/CHF extended a six-day climb to a fresh 16-month high of 0.8383 on our feed in the European morning, just after the Swiss CPI, then turned and closed at 0.8310, snapping the run.

• Japan's Tankan showed business conditions for large manufacturers improving to +24 from +22, just below the +25 consensus and the highest in eight years, according to Action Forex.

The dollar, yields and the euro

• The bond selloff carried into the fourth quarter. Action Forex had the US ten-year Treasury yield up to around 5.34%, above the 5.228% peak our weekly wrap recorded, and FXStreet reported Treasury yields at 24-year highs on worries about energy-driven inflation.

• The dollar index set a new yearly high, which FXStreet put down to solid US growth and a firm labour market, while flagging that its RSI had turned overbought. Investing.com, just after the close, had the dollar at its highest since April 2025. TD Securities read the latest PCE and GDP revisions as support for a firm US economy and a still-hawkish Fed.

• EUR/USD fell for a fourth straight day and dropped below 1.1300 for the first time since May 2025, reaching 1.1265 by late morning in Europe, according to FXStreet, which cited high oil prices, rising US yields and debt concerns. On our feed it fell as far as 1.1215 in the US afternoon and closed at 1.1244. Action Forex called it a 17-month low, and Investing.com said the euro fell after France presented its budget. Wednesday's softer August PCE inflation did not stop the slide, Action Forex noted; core PCE had risen 0.2% on the month. GBP/USD fell about 0.5% on our feed, and FXStreet tied the pound's drop to the dollar index nearing 102 on US jobs and factory data.

The yen, the Aussie and commodities

• USD/JPY rose 0.55% to near 158.40 in European trading, according to FXStreet, and MUFG's Lee Hardman tied the yen's slide to fading bets on an October Bank of Japan hike; FXStreet said higher US yields had outweighed a hawkish BoJ Summary of Opinions. On our feed the pair peaked at 158.45 and closed at 158.08, still below 159.02, last Thursday's high and the line our weekly wrap is watching.

• The Australian dollar slid to around 0.6910, down 0.48% on the day as of FXStreet's report around midday in New York, as robust US data and rising yields overshadowed Tuesday's RBA rate hike to 4.60%. It extended the losses of the previous two sessions. The New Zealand dollar fell to fresh yearly lows, FXStreet said, and investingLive reported shortly after the close that it had hit an 11-month low over the past 24 hours.

• WTI dipped toward $88.00 in Asian trading, then turned the loss into a rally, back above $90 in European trade and near $91.50 by the US session, according to FXStreet, which cited reports that Chinese refiners had stopped exporting fuel and that the Pentagon was sending a third carrier group to the Middle East. Gold, rejected near $4,200 in the European morning according to FXStreet, still ended the day higher; FXStreet put the gain at over 0.40% just after the close.

Market gauges and what's next

Our proprietary metrics at the close of the session:

• Readings: an MRS of 69, a CTS of 71, unchanged, and an FSI of 60, which moved from Greed to Neutral (65 on Wednesday); the drop came from its news and volatility components.

• Top of our strength table: the yen, on top for 317 of the session's 1,440 minutes (22%), its second straight session in first place, on a day it fell about 0.5% against the dollar in European trading. The table counts minutes in first place, not how far a currency moved.

• Bottom: the Australian dollar, in last place for 27% of the minutes.

• The dollar: fourth, on top for 190 minutes, behind the yen, the pound and the euro, all three of which lost ground to it during the session.

Still ahead today: the eurozone's flash inflation estimate, due at 09:00 UTC, is forecast at 3.7%, up from 3.2% in August. US nonfarm payrolls follow at 12:30 UTC, forecast at 89,000 after 162,000, with the unemployment rate expected to hold at 4.1%.