Euro steadies near 17-month low as US yields pull back from highs

The euro steadied on Thursday as a pullback in US Treasury yields took some heat out of the dollar's rally. FXStreet reports that EUR/USD rebounded in American trading, but French fiscal worries and broad dollar strength kept the pair near the 17-month low touched earlier this week.

The calmer tone came after a rough European morning. According to the investingLive European session wrap, US 10-year yields rose 6 basis points to 5.345%, WTI crude jumped 4.1% to $92.60 and S&P 500 futures fell 0.6%. The dollar led and the Australian dollar lagged at that stage.

The fixing as a reference point

The ECB reference rate for EUR/USD on 8 October was 1.1186, up 0.08% from 1.1177 on 7 October. Over five fixings the pair is down 0.99%. The ECB fixings show other majors little changed: GBP/USD at 1.3207, USD/JPY at 158.28 and USD/CHF at 0.8337. The Mexican peso was the standout, with USD/MXN fixed 0.45% lower at 18.013.

Investing.com says the euro is limping toward a fifth weekly loss as the dollar pauses near 18-month highs. Chart: EUR/USD on TradingView.

France keeps the euro fragile

Pressure on Paris is building. Investing.com reports that euro zone finance ministers will tell France to pass its 2027 budget to calm markets.

Chris Turner at ING, quoted by FXStreet, says French debt volatility is driving EUR/USD. A report that the French Treasury may shorten the duration of its issuance unsettled investors, who fear it eases pressure on politicians to cut the deficit. ING continues to favour a dip toward the 1.1100/1.1120 area, where it sees stronger technical support.

Central banks

• ECB: The bank published its account of the 9-10 September meeting. Nordea's Jan von Gerich, via FXStreet, reads it as supporting further hikes, likely in December and March, with the Governing Council focused on upside inflation risks from energy shocks.
• Fed: UOB's Alvin Liew, in FXStreet, highlights unanimous support in the September minutes for a 25bp hike to 3.75-4.00% and sees more hikes after an October pause.
• BoE: Governor Andrew Bailey said markets must be better prepared for future shocks and policy must stay focused on bringing inflation back to target. For more on sterling's technical picture, see our sister site's look at the pound testing 1.3200 support.

US data

US initial jobless claims came in at 197K against 200K expected, investingLive reports. Continuing claims were 1.716 million versus 1.708 million expected. investingLive says the readings remain near multi-generational lows and show the Fed has room to hike.

August wholesale inventories rose 0.5% against 0.7% expected, per investingLive. That trimmed the Atlanta Fed GDPNow third-quarter estimate to 3.6% from 3.7%.

Loonie and peso

Scotiabank strategists, via FXStreet, see USD/CAD consolidating around 1.4269 after a sharp Canadian dollar slide since early September, with the pair tracking the 2-year US-Canada spread and oil giving the loonie some support.

Societe Generale, also in FXStreet, says USD/MXN is pulling back after an interim high near 18.43. It flags 17.68 and the 200-day moving average at 17.40 as key downside levels.

What to watch next

1. Fed's Waller on the economic outlook. investingLive listed the speech and calls him a good leading indicator of Fed policy.
2. France's 2027 budget, as euro zone ministers push Paris to pass it.
3. US Q3 GDP: investingLive notes the first release is getting closer, with the next GDPNow update in a week.
4. US yields: whether Thursday's retreat holds after the morning's surge. Dollar index chart: DXY on TradingView.