(Bloomberg) — Rising bond yields in the US will heap more pressure on the euro, triggering a drop to parity with the dollar, according to State Street Global Advisors.
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The dollar’s surge to a more-than two year high has taken place in lockstep with the rise in the 10-year Treasury yield, which is now likely to reach 5% from around 4.8% on Tuesday, according to Aaron Hurd, a portfolio manager at State Street Global Advisors. Although Hurd is a long-term dollar bear, he correctly forecast the recent jump in the US currency, opening a tactically long position in the fourth quarter of last year.
“Euro/dollar could break parity and maybe go a little below” if the Treasury yield reaches 5%, Hurd said. He added that a further drop toward 0.95 in the euro would require a fresh driver, including further clarity on the outlook for US tariffs.
Hurd’s forecast chimes with a growing number of calls for the 10-year yield to rise to 5% and the euro to reach parity with the dollar as incoming US President Donald Trump’s tariff proposals keep the Federal Reserve cautious about further interest rate cuts.
Market consensus is still for the euro to stay above $1.03 throughout 2025 and only two out of 52 analysts surveyed by Bloomberg see US yields reaching 5% by the end of the year.
Still, moves in the options market point to a growing possibility that the 10-year yield could hit 5%. The last time the 10-year yield traded above 5% for a sustained period was in 2007, in the lead-up to the global financial crisis.
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