Euro Holds Gains as Markets Focus on US Inflation

Key Moments

Euro Steadies but French Debt Concerns Limit Upside

The EUR/USD pair is trading near 1.1215 during Thursday’s Asian session, recovering some ground but still facing headwinds. Persistent concerns about France’s fiscal position appear to be restraining further appreciation in the common currency, even as traders await key U.S. data releases.

French government bonds have been among the most pressured assets in the latest global fixed-income selloff, amid worries that political maneuvering ahead of next year’s presidential election could complicate deficit-reduction efforts. Against this backdrop, European Central Bank (ECB) President Christine Lagarde commented that France should address its debt challenges through fiscal consolidation, dampening speculation that the ECB might intervene by purchasing French bonds to curb rising yields.

With this political and fiscal backdrop in Europe, market participants are now focused on upcoming U.S. September Producer Price Index (PPI) and Retail Sales figures due later on Thursday, which could set the tone for both the dollar and broader risk sentiment.

U.S. CPI Beats Expectations, Reinforcing Tightening Narrative

Recent U.S. inflation data have added complexity to the interest-rate outlook. The U.S. Consumer Price Index (CPI), a broad gauge of price trends across the economy, rose 0.6% month-on-month in September, according to the Bureau of Labor Statistics. This outcome left the 12-month rate at 3.7%. Economists had anticipated the same 0.6% monthly increase but expected a slightly lower 3.6% annual reading.

Excluding food and energy, the core CPI advanced 0.3% on the month and 2.6% on a yearly basis. Consensus estimates had looked for increases of 0.2% and 2.5%, respectively, indicating a firmer underlying inflation picture than projected.

These figures have lent support to the view that the Federal Reserve will maintain its tightening bias at its upcoming policy meetings. The inflation surprise has bolstered the case for additional rate increases, even as policymakers weigh the impact of prior moves and tighter financial conditions.

Market Pricing and Fed Expectations for October and Beyond

The stronger CPI report has led futures traders to assign a higher probability to another Federal Reserve rate hike at the October policy meeting. According to the CME Group’s FedWatch tool, market participants now estimate about a 31.6% chance that the Federal Open Market Committee (FOMC) will raise rates when it convenes on October 27-28.

However, Fed communications remain nuanced. San Francisco Fed President Mary Daly stated on Wednesday that the central bank will probably need to lift short-term interest rates further to bring down inflation that remains too high. At the same time, she indicated that there is no pressing need to act at the October 27-28 meeting specifically, suggesting a preference for a more gradual and data-dependent approach.

TD Securities: CPI Upside Surprise Complicates October Call

Analysts at TD Securities characterized the September CPI release as a “strong upside surprise” that heightens concerns about inflation risks and complicates the Fed’s near-term policy decision-making. The firm noted that the latest data have made “the Fed’s calculus for October more complicated following recent clear guidance about skipping a hike at the next meeting — we are now tracking a solid 0.36% m/m gain for core PCE.”

Even so, TD Securities believes the central bank’s leadership “appears to have decided to execute a gradual tightening cycle on the back of market pricing, through with the notable broad-based rise in yields partly doing some of the tightening for them.” Higher bond yields, in their view, are already contributing to tighter financial conditions.

Within this framework, TD Securities judges that while “today’s report makes the chance of an October hike higher,” they “still believe the Fed will hold and opt for December as the market is already doing some of the work for them.” The team reaffirmed that “we are still of the view that October will be a skip based on that pre-CPI guidance. And we continue to look for 75bps of total tightening. However, it is certainly a closer call after today’s CPI data.”

Daly’s Remarks: Hawkish Bias with Emphasis on Patience

Fed rhetoric has also been parsed closely by markets. San Francisco Fed President Mary Daly’s latest comments registered a 6.8/10 reading on the FXS Speechtracker, a touch above the 6.1/10 historical average and pointing to a somewhat more hawkish tone than usual. Her emphasis on higher gasoline-driven headline CPI, persistent core inflation, and the likelihood of further rate increases – balanced by a preference for careful timing and deliberate steps – highlights a bias toward additional tightening but without immediate urgency.

Daly’s focus on inflation remaining above target, a still-resilient labor market, and the importance of transparent, accountable communication underpins what has been described as a measured hawkish stance. Market reaction suggests that this messaging is broadly understood, as trading in dollar assets appeared relatively composed after the CPI release.

The broader stance of Fed communications can be seen in the FXS Fed Sentiment Index, which slipped by 0.84 points to 128.17. This move signals a modest retreat in perceived hawkishness. Nevertheless, the index remains well above the neutral 100 threshold, indicating that overall Fed commentary is still firmly in tightening territory, even as the tone shifts slightly toward patience and data dependence.

EUR/USD Technical Picture: Bearish Bias Below 100-Day SMA

From a technical standpoint, EUR/USD continues to exhibit a bearish short-term structure while it trades under key moving averages on the daily chart. The pair remains below the 100-day simple moving average (SMA) and the middle line of the Bollinger Bands, reflecting ongoing downside pressure despite the current stabilization attempt.

The Relative Strength Index (RSI) stands at 36.1, recovering from oversold conditions but still pointing to only limited buying interest as prices contend with overhead resistance. The market is attempting to consolidate after a recent decline, yet sellers continue to dominate as long as the pair is capped beneath clustered resistance zones.

On the upside, the first notable barrier is the Bollinger Bands’ middle line at 1.1295, followed by the 100-day SMA around 1.1475 and the upper Bollinger band near 1.1500. Together, these levels form a broad supply area that could cap corrective rallies.

On the downside, support is seen at the lower Bollinger band near 1.1090. A decisive break below this threshold would likely signal renewed bearish momentum, opening the door to an extension of the prevailing downtrend.