EUR/USD appreciates to approximately 1.1205 during the early hours of Wednesday’s Asian session. Fed’s Williams indicated that the central bank might not need to raise rates in 2027. Concerns regarding France’s fiscal outlook may limit the potential appreciation of the Euro. The EUR/USD pair maintains a favourable position close to 1.1205 in the early hours of trading on Wednesday in Asia. The US Dollar softens against the Euro following remarks from New York Federal Reserve President John Williams. The US September Consumer Price Index inflation data is set to be the focal point later on Wednesday. Fed’s Williams said on Tuesday that he doesn’t see additional rate hikes in 2027 after one more increase this year. “I haven’t changed my view that it may be appropriate to have one more rate hike,” said Williams. “I don’t think at this time I have any reason to believe that we would need to do more,” he added. Traders in Fed funds futures are predominantly wagering that the US central bank will implement at least one rate increase in 2027, as indicated by the CME FedWatch tool. Traders prepare for the US CPI report later today, which may offer additional insights into the Federal Reserve’s policy trajectory. The headline CPI is anticipated to increase by 3.6% year-over-year in September, compared to the previous figure of 3.4%.
The core CPI is anticipated to exhibit a year-over-year increase of 2.5% in September, up from 2.4% in August. “We have some inflation data that’s coming out later this week. So market is kind of waiting to see how that plays out,” said Bob Haberkorn. Across the pond, apprehensions regarding France’s debt burden may exert pressure on the shared currency. The recent sell-off in the bond market has elevated borrowing costs to their highest levels in nearly 25 years. Meanwhile, the premium that investors require to hold French 10-year debt as opposed to Italian bonds reached a record on Friday. Analysts estimate that “EUR/USD is around 1.5% undervalued relative to short-term fundamentals,” arguing this points to a moderate France-related risk premium that is becoming embedded in the Euro and could yet widen if French bonds continue to lose value. For now, however, they stress that is not their central scenario. While ING concedes “it’s early to call for a retightening of the OAT-Bund 10yr gap,” the bank notes that expectations this year’s budget can be passed via decree may help keep the spread “below 150-160bp.” Against that backdrop, ING warns that “it’s hardly a welcoming environment for EUR bulls,” with the near-term domestic calendar offering little support beyond several ECB appearances, including President Lagarde. The bank points out that “markets are already fully priced for a December hike, leaving limited scope for additional hawkish support, while an October move still looks unlikely.”
In terms of the currency outlook, ING cautions that “a test of 1.110 remains the risk for EUR/USD, even if we expect some stabilisation today.” Reflecting the more challenging environment, the bank says “we have revised our EUR/USD forecast lower to 1.13 for 4Q26 and 1Q27.” Fed’s Williams delivered a notably more dovish tone, with the FXS Speechtracker score at 3.4/10, significantly below the historical average of 5.8/10, highlighting a softer policy stance. The explicit signal that Williams currently sees no need for a rate hike in 2027, alongside confidence that inflation will slow “quite a bit” toward the 2% target next year, indicates a prolonged steady-rate or eventual easing bias that is detrimental to the Dollar and favourable for risk assets. This combination indicates that the Fed is becoming more at ease with the disinflation path and is less likely to consider reintroducing tightening measures. The FXS Fed Sentiment Index decreased by 3.09 points to 133.86, reflecting a significant dovish shift in tone while still remaining well above the neutral 100 threshold, indicating a hawkish stance overall. The pullback, along with the weak FXS Speechtracker score, indicates that although the overall policy stance remains restrictive, marginal Fed communication is becoming less favourable for the Dollar as markets reevaluate the probability of future rate hikes.
In the daily chart, EUR/USD maintains a bearish near-term bias as the spot price remains significantly below the Bollinger middle band and the 100-day simple moving average. The pair is pressed toward the lower end of its recent range, while the Relative Strength Index (14) at 31.0 hovers just above oversold territory, indicating that downside momentum remains dominant but is nearing levels where selling pressure may begin to diminish. On the topside, initial resistance aligns with the Bollinger middle band at 1.1310, ahead of the 100-day SMA at 1.1480 and the Bollinger upper band near 1.1520, which collectively delineate a robust supply zone that constrains upward movements. On the downside, the Bollinger lower band at 1.1100 presents the next significant support level, and a sustained breach below this threshold would strengthen the existing bearish sentiment and pave the way for additional declines.
