Euro Gains Momentum as Lower US Yields Counteract Hawkish Fed Stance

The Euro surged over 0.85% during Wednesday’s North American session, defying the hawkish undertones of the latest Federal Reserve minutes. Despite some participants and three dissenters suggesting further rate hikes might be necessary if disinflation falters, the EUR/USD rose to 1.1673. The currency’s strength was bolstered by declining US yields, which offset the impact of the Fed’s cautious stance.

EUR/USD Advances as US Yields Decline Despite Hawkish Fed Minutes

The Federal Reserve’s July meeting minutes revealed that policymakers remain concerned about inflation, with many participants noting that further policy tightening might be required if inflation fails to decline. Dissenters within the meeting acknowledged that inflation appears to be broad-based, supporting a more restrictive policy approach.

The FOMC minutes indicated that no discussions regarding policy easing took place. Additionally, new Fed Chair Kevin Warsh raised the possibility of reducing the number of annual monetary policy meetings to six to allow for more comprehensive data analysis between sessions, though the 2026 schedule is set to remain unchanged.

Meanwhile, the US Treasury’s buyback of long-term bonds suggests concerns regarding elevated yields. According to Bloomberg, these measures function as a form of yield curve control intended to suppress long-term rates that are perceived as a risk to economic growth.

In the Eurozone, the Harmonized Index of Consumer Prices (HICP) for July rose to 2.9%, up from 2.8% in June, aligning with market forecasts. Underlying inflation also increased, moving from 2.4% in June to 2.5%.

This data strengthens the argument for higher interest rates in Europe. The European Central Bank (ECB), led by Christine Lagarde, is widely expected to implement a 25 basis point rate hike during its September 10 meeting. Market pricing currently reflects an 88% probability of this increase, according to Prime Terminal data.

Upcoming US economic data includes Initial Jobless Claims, S&P Global Flash PMIs, and a speech by St. Louis Fed President Alberto Musalem. In the Eurozone, focus shifts to Germany’s Producer Price Index (PPI), the Trade Balance, and upcoming commentary from ECB members.

EUR/USD Technical Analysis

On the daily timeframe, EUR/USD is trading at 1.1678. The pair maintains a short-term bullish bias after breaking above a key support cluster consisting of the triple simple moving average near 1.1470 and a reclaimed trend-line break at 1.1459. However, momentum is currently stretched; the 14-period Relative Strength Index (RSI) stands at 72.8, indicating overbought conditions that could lead to a temporary slowdown in the upward trend.

Looking ahead, the immediate resistance sits at 1.1849. A break above this level is necessary to sustain the current rally. On the downside, initial support is located at 1.1678, with further support found at the 1.1459 trend-line and the 1.1470 moving average cluster, where demand is expected to return during corrective pullbacks.

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