The Euro (EUR) strengthened against the US Dollar (USD) on Tuesday, with EUR/USD trading around 1.1192, up 0.33% on the day, as the US Dollar retreated from recent highs despite ongoing concerns about France’s fiscal and political outlook [1]. The US Dollar Index (DXY) was last seen at 102.25 after reaching 102.61 on Monday, its highest since April 2025, while the benchmark 10-year US Treasury yield rebounded to approximately 5.21% from 5.17%, remaining below last week’s peak of 5.36%, the highest since 2002 [1].
Market participants are closely watching the upcoming US Consumer Price Index (CPI) report, scheduled for release on Wednesday. September’s headline CPI is expected to rise 0.6% month-over-month, up from 0.4% in August, with annual inflation forecast to increase to 3.7% from 3.4%. Core CPI, which excludes food and energy, is projected to rise 0.2% month-over-month, easing from 0.3%, while the annual rate is expected to edge up to 2.5% from 2.4% [1].
The inflation data comes ahead of the Federal Reserve’s meeting on October 27-28. According to the CME FedWatch Tool, there is an 80% probability that interest rates will remain unchanged at 3.75%-4.00%, though traders still anticipate another rate hike before the end of the year [1]. Elevated energy prices continue to exert upward pressure on inflation, with no breakthrough in diplomatic efforts between Washington and Tehran regarding the reopening of the Strait of Hormuz [1].
The European Central Bank (ECB) is also grappling with inflation pressures, keeping further interest-rate hikes as a possibility. However, higher energy costs and a widening spread between French and German government bond yields, amid concerns over France’s fiscal situation, pose risks to growth and financial stability, complicating the ECB’s policy decisions [1]. Nordea analysts note that the ECB’s September account confirmed policymakers see inflation risks as tilted to the upside, without committing to a future rate path. They add that the widening of French spreads introduces downside risks to growth, but their baseline remains for further 25 basis point rate increases in December and March [1].
CONCLUSION
The Euro’s recent gains are supported by a softer US Dollar, but persistent French fiscal risks and upcoming inflation data keep market uncertainty elevated. Both the Federal Reserve and the ECB face complex policy decisions amid inflationary pressures and geopolitical risks. Market participants are likely to remain cautious ahead of key economic releases and central bank meetings.