The EUR/USD pair experiences an uptick as the US Dollar weakens in response to the announced buyback plans for US Treasury bonds. Escalating geopolitical tensions between the US and Iran may bolster demand for safe-haven assets, thereby constraining additional losses for the US Dollar. Above-target Eurozone inflation bolsters expectations for additional ECB rate hikes, supporting the strength of the Euro. EUR/USD continues to exhibit strength for the fourth consecutive trading day, trading around 1.1680 during the Asian hours on Monday. The currency pair maintains its position as the US Dollar faces challenges due to recently unveiled fiscal measures in the United States. The Treasury Department surprised financial markets by pledging to at least double its buybacks of longer-dated government debt in an attempt to rein in rising bond yields.
Treasury Secretary Scott Bessent observed that buybacks might exceed $4 billion, a calculated initiative intended to convey that high yields do not truly reflect the core economic fundamentals. Despite the pressure on the Greenback, further upside for EUR/USD may remain constrained due to safe-haven demand bolstering the US Dollar in light of escalating geopolitical tensions in the Middle East. Tensions escalated following the remarks of Iranian Foreign Minister Abbas Araghchi, who characterised the impending US sanctions as a desperate measure that would ultimately prove ineffective in undermining Tehran. In a development that heightens tensions, Iranian Security Chief Mohsen Rezaei cautioned of “earthquake-like” retaliation should US President Donald Trump escalate actions, thereby amplifying risk-averse sentiment across global markets.
On the European front, the Euro is drawing baseline support from sticky inflation figures and persistent expectations of ECB monetary policy. Eurozone consumer inflation expectations for the upcoming year have decreased marginally to 2.9%, down from 3% in June. However, as price growth persists significantly above the European Central Bank’s 2% target, markets are still factoring in the potential for further monetary tightening in the wake of June’s interest rate increase. Analysts expect the ECB to move gradually toward a new framework for structural Longer-term Refinancing Operations as excess liquidity declines.
They note that “the ECB could start discussions about the design of structural LTROs towards the end of this year, but the launch date depends on banks’ demand for reserves.” In their view, “12 months is a plausible maturity for these operations,” with the central bank likely favouring a more market-driven approach. Rabobank adds that “the ECB may issue the LTROs by auction, instead of the fixed-rate, full-allotment procedure,” aligning the new tool more closely with standard refinancing operations while still supporting reserve demand.
