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      US Dollar Faces Pressure Amid Growth Concerns and French Budget Vote

      The US dollar has experienced recent pressure as Treasury yields declined significantly following higher-than-expected inflation data. This reaction has raised concerns about economic growth, leading to speculation that the Federal Reserve may need to maintain a hawkish stance due to persistent inflation, potentially resulting in future rate cuts. Market expectations for interest rate tightening by the end of 2027 have decreased from 80 basis points to 70 basis points, despite ongoing inflation and geopolitical stability. The upcoming US Flash Purchasing Managers' Index (PMI) data will be critical in assessing economic activity, with strong results likely to support the dollar, while weak data could exacerbate growth concerns.

      On the euro side, the likelihood of a rate hike by the European Central Bank (ECB) in October has diminished sharply due to bond market instability and the widening spread between French and German bonds, which has reached levels not seen since the European debt crisis. However, traders still anticipate a rate hike in December, with an 87% probability priced in, as high energy prices continue to pose inflation risks. The euro's performance will remain sensitive to developments in the bond market, particularly the French-German spread, as a key budget vote in France is scheduled for tomorrow. This vote will assess the government's ability to achieve fiscal consolidation, with a smooth passage potentially boosting the euro, while a rejection could pressure both French bonds and the euro.

      The technical outlook for the EUR/USD exchange rate indicates that it has been forming a bottom, although downside risks persist. Key levels to watch include the 1.1067 support level, where buyers may step in if the price declines further. Conversely, sellers are eyeing a break lower towards the 1.08 handle. Resistance is noted around the 1.1275 level, which has seen multiple rejections in recent weeks. The market will be closely monitoring the upcoming budget vote in France, US Jobless Claims figures, and the Eurozone and US Flash PMIs later in the week for further direction.

      © 2026 KLEA News. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

      Source: KLEA News

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