EUR/USD Surges on US Treasury Buybacks, Euro Area Inflation Data Confirmed

The EUR/USD currency pair spiked higher against the US Dollar after the US Treasury announced an increase in buyback volumes of longer-dated US Treasuries. This move flattened the bond curve, causing the 10-year yield to drop below its peak on Tuesday, currently sitting at 4.64%. The transmission of this move was only partial, as primary issuance remains active in Europe.

The FOMC minutes from the July meeting revealed that views on inflation diverged among participants, with some assessing that policy tightening would be necessary if inflation did not decline. Some also noted that financial conditions might not be sufficiently restrictive to return inflation to 2%, consistent with hold-voters signalling openness to future hikes following the meeting.

Inflation data for the euro area confirmed a flash estimate of 2.9% year-over-year, with core inflation at 2.5%. Underlying measures were broadly unchanged, suggesting that price pressures have not risen significantly following the energy shock. The Labour Cost Index eased to 3.1% year-over-year from 3.2% in Q1, indicating wage pressures continue to moderate and remain a disinflationary force.