Euro steadies as traders weigh France’s budget risks and Fed outlook
EUR/USD holds modest gains during American trading hours on Tuesday as the US Dollar (USD) struggles to gain traction following its recent pullback. However, sentiment toward the Euro (EUR) remains fragile amid France’s fiscal and political troubles, limiting the pair’s upside.
The Euro (EUR) stabilized on Tuesday as traders evaluated France's fiscal challenges and the Federal Reserve's outlook. The US Dollar (USD) faced difficulty gaining momentum after a recent decline, but the Euro's prospects remained uncertain due to France's budgetary issues, constraining its upward potential. At the time of reporting, the EUR/USD pair was trading around 1.1223, marking a 0.10% increase for the day.
Meanwhile, the US Dollar Index (DXY), which measures the Dollar's value against six major currencies, slipped 0.23% to 101.76, having edged close to 103 earlier in the week, its peak since April 2025. The 10-year US Treasury yield hovered near 5.08%, down from a recent 5.36% level. However, the Dollar's decline and Treasury yields' fall seemed restrained as fears of inflation from surging energy prices kept the Federal Reserve poised to raise rates again before the year's end.
Oil prices surged past $100 per barrel, driven by Houthi attacks on Saudi energy facilities and heightened threats in the Strait of Hormuz. Traders anticipate the Federal Reserve to hold off on further rate hikes during its meeting on October 27-28 after raising rates by 25 basis points in September. A Reuters survey indicated that 94 out of 100 economists expect interest rates to stay between 3.75%-4.00% this month, with all participants predicting a rate hike in December.
On the European front, improved conditions in France provided some comfort following violent protests. Nevertheless, the country's proposed 2027 budget and efforts to enhance public finances remain a concern. The monetary policy landscape also weighs on the Eurozone, as energy-related inflation pressures keep the European Central Bank (ECB) open to additional rate hikes, with inflation remaining above its 2% target.
The ECB has raised rates twice this year and is expected to do so again in December. ECB President Christine Lagarde acknowledged the tight financing conditions in her remarks on Saturday, highlighting the challenge of controlling energy-driven inflation while maintaining economic growth.
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