it is changing direction, moving higher after an earlier decrease
Interest rate levels between the two regions are very different at this point. Such divergence should push US bond yields to be much higher than EU ones, and should also clearly support the USD (ignoring other factors).
IntroWe measure here the monetary policy divergence between Europe and the US, or the difference in their currently applied interest rates, using key interbank market rates - EURBOR and AMERIBOR. In more detail, both EURIBOR and AMERIBOR are the basic rates of interest used in lending between banks. If we look at the longest chart, it is the US LIBOR (instead of AMERIBOR) applied to dates up to November 2015.
Chart guideIn the chart above we show a line resulting from the difference between the current US minus EU interest rate. If a point on the line is above 0, it means that US rates are higher at that point in time. Viceversa, EU rates are higher when a point on the line goes below zero.
Economic implicationsIf the interest rates of a region are higher, they will attract capital if investors will perceive a similar level of growth and risk in the economy vs lower rates in Europe. This would influence the level of US vs EU bond yields and the EURUSD interest rates.
We use this chart to measure exactly what kind of influence on capital flows the current monetary policy divergence would have, and subsequently where bond yields and the EURUSD should be, given such input. If yields and the FX rate are not spinning in the expected direction, then we will search elsewhere what other factors are offering more influence.
Yield differential vs EURUSD
yield differential & the EURUSD
assessing the impact of market yields on the FX rate
is the EU/US yield differential driving the FX rate?
Latest available data: 23-03-2026
Yield differential: situation
currently, US 10yr Treasury yields are higher than the German Bund ones, a factor that should support the USD
looking at the past 3 months, US Treasury yields have moved higher, increasing the overall divergence vs German government bonds
What's the relationship between yield divergence and EURUSD then?
in the short term (1 month) the weak correlation between the yield differential and the EURUSD for the period suggest that the exchange rate has been driven by other factors
zooming out (3 months) the weak correlation between the yield differential and the EURUSD for the period suggest that the exchange rate has been driven by other factors
Their correlation for different periods:
1-month: 0.23, weak
3-month: 0.24, weak
YTD: 0.31, 0.31 weak
1-year: -0.46, -0.46 weak
IntroWe measure here the monetary policy divergence between Europe and the US, or the difference in their currently applied interest rates, using key interbank market rates - EURBOR and AMERIBOR. In more detail, both EURIBOR and AMERIBOR are the basic rates of interest used in lending between banks. If we look at the longest chart, it is the US LIBOR (instead of AMERIBOR) applied to dates up to November 2015.
Chart guideIn the chart above we show a line resulting from the difference between the current US minus EU interest rate. If a point on the line is above 0, it means that US rates are higher at that point in time. Viceversa, EU rates are higher when a point on the line goes below zero.
Economic implicationsIf the interest rates of a region are higher, they will attract capital if investors will perceive a similar level of growth and risk in the economy vs lower rates in Europe. This would influence the level of US vs EU bond yields and the EURUSD interest rates.
We use this chart to measure exactly what kind of influence on capital flows the current monetary policy divergence would have, and subsequently where bond yields and the EURUSD should be, given such input. If yields and the FX rate are not spinning in the expected direction, then we will search elsewhere what other factors are offering more influence.