The EUR/USD pair traded positively near 1.1205 during early Asian hours on Wednesday, as the US Dollar softened against the Euro following comments from New York Federal Reserve President John Williams [1]. Williams stated that he does not foresee additional rate hikes in 2027 after one more increase this year, saying, “I haven’t changed my view that it may be appropriate to have one more rate hike,” and adding, “I don’t think at this time I have any reason to believe that we would need to do more” [1]. According to the CME FedWatch tool, traders are largely betting that the US central bank will raise rates at least once in 2027 [1].
Market participants are closely watching the upcoming US September Consumer Price Index (CPI) inflation data, which is expected to show a headline rise of 3.6% year-over-year, up from 3.4% previously, and a core CPI increase of 2.5% year-over-year, compared to 2.4% in August [1]. Bob Haberkorn, senior market strategist at StoneX, noted, “We have some inflation data that's coming out later this week. So market is kind of waiting to see how that plays out” [1].
Meanwhile, concerns over France’s debt burden continue to weigh on the Euro. The recent bond market sell-off has pushed French borrowing costs to their highest levels in nearly 25 years, and the premium investors demand to hold French 10-year debt over Italian bonds reached a record on Friday [1]. ING analysts estimate that "EUR/USD is around 1.5% undervalued relative to short-term fundamentals," suggesting a moderate France-related risk premium is becoming embedded in the Euro, which could widen if French bonds continue to lose value [1]. However, ING does not see this as their central scenario and notes that expectations for this year's French budget to be passed via decree may help keep the OAT-Bund 10-year spread below 150-160 basis points [1].
ING further warns that the environment is "hardly a welcoming environment for EUR bulls," with the near-term domestic calendar offering little support beyond several ECB appearances, including President Lagarde [1]. Markets are already fully priced for a December ECB hike, leaving limited scope for additional hawkish support, while an October move is considered unlikely [1]. ING has revised its EUR/USD forecast lower to 1.13 for the fourth quarter of 2026 and the first quarter of 2027, and cautions that "a test of 1.110 remains the risk for EUR/USD, even if we expect some stabilisation today" [1].
CONCLUSION
The Euro has edged higher against the US Dollar despite ongoing fiscal concerns in France and anticipation of key US inflation data. Analysts remain cautious, highlighting a challenging environment for the Euro and revising forecasts lower amid persistent risk premiums and limited policy support. Market participants are awaiting the US CPI release for further direction.