EUR/USD extended losses on Wednesday as the euro stayed under broad selling pressure and the US dollar firmed alongside higher US Treasury yields. The pair was trading near 1.1195, down 0.57% on the day and close to its lowest level in 17 months. The US Dollar Index (DXY) hovered around 102.30, a level last seen in April 2025, while the 10-year Treasury yield rose to 5.365%, its highest since 2002, before easing towards 5.31%.
Rising oil prices, concerns over swelling government debt and a resilient US growth outlook were cited as drivers of higher borrowing costs, reinforcing support for the dollar as inflation risks remain skewed higher and the Federal Reserve (Fed) maintains a restrictive stance. Markets were awaiting minutes from the Federal Open Market Committee’s (FOMC) September meeting at 18:00 GMT, after the Fed raised rates by 25 bps to a 3.75%–4.00% target range, though softer employment and Personal Consumption Expenditures (PCE) inflation data reduced expectations of another move at the 27–28 October meeting. In the Eurozone, worries over France’s public finances lifted borrowing costs and widened spreads, a backdrop that can also constrain European Central Bank (ECB) tightening even as markets continue to price further rate rises; headline and core inflation were described as “far below” 2022 energy-shock levels.
Eurozone Fiscal Anxiety and Market Implications
We should closely monitor the widening spread between French and German 10-year government bonds, which has recently climbed past 75 basis points. This widening spread indicates deepening fiscal anxiety in the Eurozone, a factor that historically drives speculators to build short positions on the Euro. As long as these political and fiscal anxieties persist in Europe, we expect the Euro to face continued downward pressure.
Hedging Strategies and Central Bank Volatility
In the options market, we should consider hedging against further Euro weakness by utilizing short-term put options on the EUR/USD pair. With the US Dollar Index hovering near 102.30 and the 10-year US Treasury yield pushing toward multi-decade highs of 5.36%, the greenback’s momentum remains formidable. This interest rate advantage makes holding US Dollar-denominated assets highly attractive compared to Euro-denominated ones.
We must also prepare for heightened volatility surrounding the upcoming central bank announcements, particularly the release of the latest Federal Reserve meeting minutes. Recent economic data shows US core inflation holding sticky near 2.6%, which might force the Fed to keep borrowing costs elevated for longer than the market currently anticipates. If the minutes lean hawkish, we should look to capitalize on quick downside moves in EUR/USD toward the 1.1100 support level.
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