Euro steadies as US yields retreat, traders assess Fed and ECB signals

• EUR/USD rebounds as a pullback in US Treasury yields limits the Greenback’s advance.
• Higher Oil prices keep inflation risks elevated on both sides of the Atlantic.
• Fed minutes favour another hike this year, while the ECB keeps its policy options open.

EUR/USD rebounds during American trading hours on Thursday as a pullback in US Treasury yields tempers the US Dollar’s (USD) momentum. However, France’s fiscal concerns and broader US Dollar strength keep the Euro (EUR) pinned near the 17-month low touched earlier this week. At the time of writing, the pair trades around 1.1202, recovering from an intraday low of 1.1171.

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 102.24, below Monday’s peak of 102.53, its highest level since April 2025. Meanwhile, the benchmark 10-year US Treasury yield eases toward 5.28% after reaching 5.36% on Wednesday, its highest level since 2002.

Despite the retreat, Oil-driven inflation risks and expectations of additional interest rate hikes by the Federal Reserve (Fed) keep upward pressure on yields. Concerns over government debt and resilient US economic growth also contribute to elevated borrowing costs.

Oil prices rebound on Thursday, with West Texas Intermediate (WTI) gaining over 3% after reports that the Pentagon has ordered preparations for possible renewed strikes on Iran. The threat of renewed escalation raises concerns that energy prices could stay high for longer, making it harder for both the Fed and the European Central Bank (ECB) to bring inflation back to their 2% targets and adding pressure to keep monetary policy tight.

Minutes from the Fed’s September monetary policy meeting, released on Wednesday, show that officials acknowledged inflation remained elevated, the labour market was near maximum employment and economic activity was expanding at a solid pace. Most participants considered another rate increase likely appropriate by year-end, with the CME FedWatch Tool placing the odds of a December hike at around 86%.

On the European side, the ECB’s September meeting account, released on Thursday, revealed that policymakers saw the outlook as highly uncertain and critically dependent on geopolitical developments, with upside risks to inflation and downside risks to growth. Updated staff projections indicated that inflation would stay well above target for an extended period. Officials stressed that future decisions should remain data-dependent, without committing to a particular rate path.

A Reuters poll conducted October 5-8 shows that 70 of 73 economists expect the ECB to hold its deposit rate at 2.50% on October 29, while 64 of 73 anticipate a 25-basis-point hike in December.