Euro edges higher above 1.1200 despite France fiscal risks, US CPI in focus

• EUR/USD gains ground to around 1.1205 in Wednesday’s early Asian session.
• Fed’s Williams said the central bank may not have to hike rates in 2027.
• Concerns over France's fiscal outlook might cap the Euro’s upside.

The EUR/USD pair 1.1205 holds positive ground near 1.1205 during the early Asian trading hours on Wednesday. The US Dollar (USD) softens against the Euro (EUR) following remarks from New York Federal Reserve (Fed) President John Williams. The US September Consumer Price Index (CPI) inflation data will take center stage 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.

Fed funds futures traders are largely betting that the US central bank will raise rates at least once in 2027, according to the CME FedWatch tool.

Traders brace for the US CPI report later in the day, which could provide further direction on the Fed’s policy path. The headline CPI is expected to show a rise of 3.6% YoY in September, versus 3.4% prior. The core CPI is projected to show an increase of 2.5% YoY in September, compared to 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, senior market strategist at StoneX.

Across the pond, concerns over France’s debt burden could weigh on the shared currency. The recent sell-off in the bond market has pushed borrowing costs to their highest levels in nearly 25 years. Meanwhile, the premium investors demand to hold French 10-year debt rather than Italian bonds reached a record on Friday.

Euro under pressure as France risk premium lingers and EUR/USD forecasts are cut

Analysts at ING 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."

Williams’ dovish tilt weighs on Dollar as Fed hike seen off the table for 2027

Fed’s Williams delivered a notably more dovish tone, with the FXS Speechtracker score at 3.4/10, well below the 5.8/10 relative to the historical average, underscoring 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, points to a prolonged steady-rate or eventual easing bias that is negative for the Dollar and supportive of risk assets. This combination suggests the Fed is increasingly comfortable with the disinflation trajectory and less inclined to re-open the door to renewed tightening.

The FXS Fed Sentiment Index fell by 3.09 points to 133.86, indicating a meaningful dovish shift in tone despite remaining firmly in hawkish territory above the neutral 100 threshold. The pullback, together with the weak FXS Speechtracker score, signals that while the overall policy stance is still restrictive, marginal Fed communication is turning less supportive for the Dollar as markets reassess the likelihood of future hikes.

Technical Analysis: EUR/USD retains a negative tone below the 100-day SMA

In the daily chart, EUR/USD keeps a bearish near-term bias as spot remains well below the Bollinger middle band and the 100-day simple moving average (SMA). 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, hinting that downside momentum is still dominant but approaching levels where selling pressure could start to fade.

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 together outline a dense supply zone limiting rebounds. On the downside, the Bollinger lower band at 1.1100 offers the next noteworthy support, and a sustained break beneath this level would reinforce the prevailing bearish tone and open the door to further declines.

(The technical analysis of this story was written with the help of an AI tool. Know more.)