The euro sits at the bottom of the major currency table as French bond stress compounds a broader dollar advance tied to rising oil prices and climbing bond yields. EUR/USD needs to close back above 1.1185 to counter the bearish signal, with the Fed's September meeting minutes due at 18:00 GMT.
France's widening bond spread, not the Federal Reserve, is driving Wednesday's euro weakness. The OAT-Bund spread widened to 141.2bp, up sharply from 129.7bp at Tuesday's close, erasing a narrowing that had pulled the spread back from roughly 150bp at Monday's intraday peak.
France pushes the euro to the bottom
The dollar index, DXY, stood at 102.401, up 0.55% at the time of writing, stronger against all seven major peers. Yet the euro, not a broad dollar surge, is doing most of the damage: the ActionForex currency heat map showed the euro as the weakest major at 12:15 GMT, while the yen and Swiss franc held up much better despite the dollar's strength.
IMF Managing Director Kristalina Georgieva, speaking to CNBC on Wednesday from Singapore, said France needs to reduce its deficit and restore fiscal credibility. Her message was simple: According to CNBC: "get your house in order." UBS CEO Sergio Ermotti has argued that incremental adjustments are unlikely to be sufficient, while Federated Hermes' Mitch Reznick sees French debt increasingly priced more like the European periphery than the core.
Oil above $100 and climbing bond yields add pressure
Brent crude is back above the psychological $100 level as Yemen's Houthis attacked Aden airport with missiles and drones and fighting intensified around the Bab el-Mandeb Strait. Saudi Arabia's East-West Pipeline was still carrying 5.8 million barrels per day as of Tuesday morning, leaving oil caught between improving supply and persistent geopolitical risk.
US Treasury yields are climbing alongside it. The 10-year yield rose to 5.345%, up 5.9bp, and the 30-year climbed to 5.725%, up 6.4bp, while the 2-year added a smaller 1.6bp to 4.814%. That pressure has already reached households: the average 30-year US mortgage rate rose 19bp to 7.49% in the week ended October 2, its highest since November 2023, while mortgage applications fell 4.2%.
Fed minutes could test September's hawkish tone
The FOMC minutes land at 18:00 GMT, covering the September 15-16 meeting where the Fed raised its target range by 25bp to 3.75-4.00% in a unanimous vote, with 16 of 18 officials projecting one more hike this year. Markets currently price about a 78% probability of no change at the October 27-28 meeting, according to CME data. September inflation data is due before that decision.
Dallas Fed President Lorie Logan has argued that at least two more hikes may be needed, while New York Fed President John Williams and Fed Vice Chair Philip Jefferson have stressed there is no need for urgency. The minutes describe a meeting held before softer September employment data and more encouraging inflation readings, so even a hawkish discussion would need to be read against information that arrived later. A hawkish tone could add pressure to front-end yields and the euro while extending dollar strength; a more patient tone could pull the 2-year yield and the dollar lower, though the long end may stay tied more closely to oil and Treasury supply.
Source: ActionForex
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