Euro Recovers as French Bond Yields Ease and BoE Rate-Hike Expectations Stay Elevated

French government bond yields fell on Tuesday after Marine Le Pen pledged €140 billion in net savings by 2032 if elected in next year’s presidential election. France’s 10-year government bond yield fell around 14 basis points to 4.72%, while the spread with German government debt narrowed and the euro recovered from Monday’s 17-month low against the US dollar.

Sterling also rose during Tuesday’s session, while Bank of England (BoE) policymaker Catherine Mann said above-target inflation had become embedded in the UK economy and could become further entrenched through wage negotiations. Markets continued to price a high probability of a November BoE rate increase, although GBP/USD gave back some of Tuesday’s gains during early Wednesday trading.

The US dollar recovered overnight amid renewed Middle East tensions and higher oil prices. During early Wednesday trading, Brent crude moved above $101 a barrel, while DXY traded around 102.1 and EUR/USD eased towards 1.1230.

Attention now turns to the Federal Reserve (Fed) September meeting minutes later on Wednesday. Market-implied expectations for an October rate increase have declined, and the minutes may provide further information on policymakers’ assessment of inflation risks and the outlook for monetary policy.

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GBP: Sterling Holds as BoE Rate Expectations Remain High

GBP/USD: 1.3244 | EUR/GBP: 0.8465

Sterling remained close to 1.3245 against the US dollar on Wednesday morning after recovering from around 1.3200 during Tuesday’s session. BoE policymaker Catherine Mann said above-target inflation had become embedded in the UK economy and warned that inflation could approach 4% around the end of the year as annual wage negotiations take place. Her comments reflected her view that persistent inflation pressures may require monetary policy to remain restrictive.

Interest-rate markets continued to price around an 80% probability of a BoE rate increase in November. Higher energy costs can raise household and business costs, while persistent wage growth may add to domestic inflation pressures.

Mann also noted that UK demand remained positive but not particularly strong, while continuing to highlight the risk of persistently elevated inflation. GBP/USD gave back part of Tuesday’s advance during early Wednesday trading, while the US dollar also strengthened.

UK construction data showed a slower pace of contraction, with the September Construction PMI rising to 46.1 from 44.3, its highest level in eight months and above expectation of 45.4. However, the reading remained below the 50 level associated with contraction under the survey methodology. EUR/GBP traded near 0.8465 on Wednesday morning after the euro recovered some ground during Tuesday’s session, while UK and euro-area interest-rate expectations remained a focus for currency markets.

Key technical reference levels for GBP/USD: resistance sits near 1.3265, followed by 1.3315, while support sits around 1.3200, followed by 1.3180.

Key technical reference levels for EUR/GBP: resistance sits near 0.8500, followed by 0.8540, while support sits around 0.8455, followed by 0.8400.

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EUR: Euro Recovers as French Bond Yields Ease

EUR/USD: 1.1218

The euro recovered from Monday’s 17-month low during Tuesday’s session, while French government bond yields fell. France’s 10-year yield declined by around 14 basis points after Marine Le Pen pledged €140 billion in net savings by 2032 if elected, while the spread between French and German government borrowing costs also narrowed. Concerns about France’s fiscal outlook nevertheless remained a focus for markets.

Concerns around France’s public finances remained in focus. Interest-rate markets continued to price further ECB tightening, with market pricing on Tuesday implying around an 80% probability of another rate increase by December. Market-implied probabilities can change rapidly.

ECB policymaker Olli Rehn also said elevated long-term yields could restrain economic growth and limit how far higher energy costs feed into broader inflation and wages. Rehn did not advocate a specific policy move and said that opposing forces were affecting the inflation outlook. EUR/USD gave back part of Tuesday’s recovery during early Wednesday trading, while the US dollar also strengthened.

Key technical reference levels for EUR/USD: resistance sits near 1.1275, followed by 1.1300, while support sits around 1.1165, followed by 1.1100.

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USD: Dollar Regains Ground Ahead of Fed Meeting Minutes

DXY: 102.1

The US dollar recovered part of Tuesday’s decline during early Wednesday trading, with DXY moving back above 102.00. The move coincided with higher US Treasury yields and renewed geopolitical uncertainty, while oil prices also rose ahead of the Fed’s September meeting minutes later in the day.

The US trade deficit widened by 13.7% to $105.6 billion in August as imports climbed to a record $420.8 billion. Economists cited by Reuters said trade was likely to weigh on third-quarter growth, while imports increased across categories including capital goods and industrial supplies. The data form part of the broader set of economic indicators being assessed by the Fed.

San Francisco Fed President Mary Daly said the need for further rate increases would depend on whether recent pressures linked to tariffs, energy prices and AI-related demand prove temporary or persistent. Interest-rate markets were pricing only around a 20% probability of an October increase, while expectations for another move later in the year remained considerably higher. Wednesday’s Fed minutes may provide further detail on how policymakers assessed inflation risks when they raised rates in September.

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Other Currencies: Yen Weakens as Markets Assess the BoJ Rate Path

AUD/USD: 0.6971 | NZD/USD: 0.5603 | USD/JPY: 158.38 | GBP/JPY: 209.75

USD/JPY has moved back above 158.00 as the yen weakened during Wednesday’s Asian session. Bank of Japan (BoJ) policymaker Ayano Sato said she supports gradually raising interest rates if economic conditions justify further tightening, but stressed that there should be no predetermined pace for future increases. Sato said she supported gradual rate increases where economic conditions justified them but that there should be no predetermined pace for future moves.

Market participants continued to assess the possibility that the BoJ could leave rates unchanged at its October meeting. Governor Kazuo Ueda also said policymakers would assess the likelihood and risks around the economic and inflation outlook when determining the timing of future moves. The yen weakened during early Wednesday trading alongside higher US yields and a firmer US dollar.

AUD/USD is trading around 0.6971 after Tuesday’s recovery failed to hold above 0.7000. AUD/USD rose during Tuesday’s broader pullback in the US dollar before easing during early Wednesday trading as the dollar strengthened.

NZD/USD has slipped back towards 0.5603 after recovering modestly during Tuesday’s session. Market expectations for an October Reserve Bank of New Zealand (RBNZ) rate increase have decreased to around 58%, from roughly 80% in late September, reducing some of the interest-rate support for the New Zealand dollar. The pair remained close to its lowest levels since November 2025 ahead of Wednesday’s Fed minutes.

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Current Rates Table

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Market Lookahead

Wednesday, Oct 07

• US Fed Meeting Minutes

Thursday, Oct 08

• EUR ECB Monetary Policy Account
• GBP BoE Governor Bailey Speech
• US Initial Jobless Claims

Friday, Oct 09

• US Michigan Consumer Sentiment (Oct)
• US Michigan Inflation Expectations (Oct)

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