EUR/USD Pair Slumps as Fed Hike Bets Overshadow ECB Tightening Expectations

The EUR/USD pair has slipped to near June lows as rising Treasury yields and hawkish Federal Reserve expectations buoy the US Dollar. The ongoing US-Iran stalemate has kept oil prices elevated, pushing up US Treasury yields and strengthening the greenback.

US President Donald Trump rejected an amended version of Iran's proposal over the weekend, sending markets into a flurry of activity. As a result, the 10-year Treasury yield has risen to its highest level since 2007 at 5.27%, while the US Dollar Index (DXY) holds near a two-month high.

Markets are now pricing in a 70% chance of another Fed rate hike in October, following the central bank's decision to raise rates by 25 basis points in September. The Fed's more hawkish messaging has sparked concerns about the potential for further tightening, which may have little to no effect on the Euro.

ECB President Christine Lagarde acknowledged that there are upside risks to inflation and downside risks to growth, but emphasized that the ECB is not setting policy based on a neutral interest rate. She noted that rates were at the upper end of the neutral range, but stressed the need for a measured response to keep inflation in check.