Euro struggles against US Dollar as hawkish Fed outlook weighs
EUR/USD trades with a downside bias on Monday as the US Dollar holds near recent highs, supported by expectations of additional Federal Reserve (Fed) interest rate hikes. Developments in the Middle East also remain in focus.
On Monday, the Euro faced downward pressure against the US Dollar as traders favored the higher-yielding currency. The EUR/USD exchange rate hovered around 1.1473, near a level not seen since late July. The US Dollar Index, which measures the Dollar's strength against six major currencies, was close to a seven-week high of 100.56.
However, a slight retreat in US Treasury yields, driven by falling oil prices, limited the Dollar's gains. The benchmark 10-year US Treasury yield was around 4.97%, below the 5.04% peak last week, its highest since 2007. Despite the pullback, US Treasury yields remained elevated due to ongoing Middle Eastern tensions and geopolitical risks embedded in energy prices.
President Donald Trump expressed openness to meeting Iranian President Masoud Pezeshkian during the UN General Assembly. Markets also anticipated the forthcoming Trump-Xi summit, set for September 23-25. Both the Federal Reserve and the European Central Bank increased interest rates by 25 basis points last week and kept the door open for further hikes to curb inflation.
The Eurozone's reliance on imported energy heightened the risk of stagflation, as surging energy costs could keep inflation high while dampening economic growth. Political instability in Germany, with Chancellor Friedrich Merz's Christian Democratic Union suffering significant losses in recent state elections, and the far-right Alternative for Germany's victories in certain regions, added pressure to the shared currency.
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