Euro steadies as US yields retreat, traders assess Fed and ECB signals

The Euro steadied against the US Dollar on Thursday, as falling US Treasury yields lessened the greenback's momentum. However, concerns over France's fiscal situation and the overall strength of the US Dollar kept the Euro near a 17-month low. At the time of reporting, the EUR/USD pair traded around 1.1202, up from a low of 1.1171 earlier in the day.

The US Dollar Index (DXY), which gauges the Dollar's value against six major currencies, stood at 102.24, lower than Monday's peak of 102.53, the highest since April 2025. The 10-year US Treasury yield eased towards 5.28%, after peaking at 5.36% on Wednesday, its highest since 2002. Despite this, inflation concerns and the Fed's potential for additional interest rate hikes maintained upward pressure on yields.

Worries about government debt and strong US economic growth also contributed to higher borrowing costs. Oil prices rose over 3% on Thursday, after the Pentagon ordered readiness for possible fresh strikes on Iran. This heightened the risk of persistently high energy prices, making it difficult for both the Fed and the European Central Bank (ECB) to reduce inflation to their 2% targets, and keeping monetary policy tight.

Fed minutes from the September meeting, released on Wednesday, showed officials recognized inflation was still high, the labor market was close to full employment, and economic activity was expanding at a good pace. Most participants thought another rate hike would likely occur by the end of the year, with the CME FedWatch Tool estimating an 86% chance of a December increase.

On the European side, the ECB's September meeting statement, released on Thursday, indicated that policymakers viewed the outlook as highly uncertain and dependent on geopolitical developments, with both rising inflation risks and downside growth risks. Staff projections suggested inflation would remain considerably above target for an extended period.

Officials emphasized that future decisions would depend on the data, without committing to a specific rate path. According to a Reuters poll conducted between October 5-8, 70 of 73 economists expect the ECB to keep its deposit rate at 2.50% on October 29, while 64 of 73 anticipate a 25-basis-point hike in December.