Euro struggles as Fed rate-hike bets overshadow ECB tightening expectations
EUR/USD trades on the back foot on Monday, pressured by a stronger US Dollar (USD) as the US-Iran stalemate keeps Oil prices elevated, pushing US Treasury yields higher and strengthening expectations of further Federal Reserve (Fed) rate hikes.
The Euro struggled on Monday as fears of further rate hikes by the US Federal Reserve overshadowed expectations of tightening from the European Central Bank (ECB). The US Dollar strengthened, pressured by the ongoing US-Iran tensions and elevated oil prices. US Treasury yields hit a multi-year high of 5.27%, while the US Dollar Index (DXY) neared a two-month peak.
Market sentiment suggested a 70% chance of an additional Fed rate increase in October, following the central bank's 25 basis point hike in September. ECB President Christine Lagarde acknowledged persistent inflation risks, but indicated a measured approach to policy, citing high uncertainty in her inflation outlook for 2027 and 2028.
The Euro faced additional headwinds from Europe's vulnerability to rising energy costs and the ECB's cautious stance on rate hikes, despite the Fed's more hawkish messaging.
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