Datong Bank warns: If US yields break 5%, the euro may fall to parity against the US dollar.

State Street Global Advisors' portfolio manager Aaron Hurd stated that the rising US bond yields will bring greater pressure to the euro, causing the euro to dollar exchange rate to fall to parity. Hurd pointed out that the US dollar's surge to a two-year high is in sync with the rise in the 10-year US Treasury yields, which may currently increase from around 4.8% on Tuesday to 5%. Although Hurd is a long-time bearish investor on the US dollar, he correctly predicted the recent rise of the dollar and established a tactical long position in the fourth quarter of last year. Hurd mentioned that if the US Treasury yields reach 5%, the euro to dollar exchange rate may fall below parity, possibly even slightly below this level. He added that further decline of the euro to dollar towards 0.95 would require new driving factors, including further clarity on the US tariff prospects. Due to US President Donald Trump's tariff proposals leading the Federal Reserve to be cautious about further rate cuts, Hurd's prediction aligns with an increasing number of calls for the 10-year Treasury yields to rise to 5% and the euro to reach parity with the dollar. The market widely believes that the euro will stay above $1.03 for the whole of 2025, while out of the 52 analysts surveyed by Bloomberg, only two believe that the US bond yields will reach 5% by the end of the year. However, the trends in the option market suggest that the probability of the 10-year Treasury yields reaching 5% is increasing. The last time the 10-year Treasury yields remained above 5% was in 2007, just before the outbreak of the global financial crisis.