Geopolitical escalation, uncertainty continue to weigh on EUR/USD

With the EUR/USD pair extending its losses for the day to backslide to 1.525, the euro has not been able to close out a range of 1.00-1.0600 as market sentiment has turned bearish.

US Treasury yields are on the rise again, with the benchmark 10-year note hitting its highest level since 2007. On Wednesday, the EUR/USD started the day looking to regain the 1.0500 level, but a re-emergence of bearish market flows has pushed the EUR/USD lower against the US dollar, having fallen back from yesterday’s low to test the 1.5200 level.

The pair is now trading back up to 1.5200 in a relief rally, but downside momentum is likely limited. The situation in the Gaza Strip is escalating, with the latest rocket attack on a hospital causing one of the highest civilian death toll in recent history. Both warring parties have blamed the other side for the building strike.

Hamstrung US Congress over failed Speaker vote making investors uneasy as funding crunch looms. In the US, political uncertainty is on the rise as the US Congress fails to select a new Speaker of the House, with two votes in two days failing to secure a nominee. With the US Congress paralyzed after the Republican majority ousted their own Speaker, the US is only 30 days away from the end of a short-term funding stopgap that was secured in the eleventh hour earlier this month.

With the US barreling towards another partisan funding clash in mid-November, uncertainty is on the rise and uneasy investors are pulling back into safe havens, propping up the USD and sending US Treasury yields into multi-year highs, with the 10-year Treasury hitting 4.928% on Wednesday, its highest yield since 2007.

EU Index of Consumer Prices, inflation figures on Wednesday came in as-expected, with September’s CPI inflation coming in at 0.3%, and the ECB President Christine Lagarde noting that underlying inflation remains strong, with wage growth still “historically high”. Lagarde reiterated that underlying inflation is still strong, wage growth is historically high.

Next up on the economic calendar will be US Initial Jobless Claims on Thursday, with investors forecasting 212K new jobless claimants for the week into October 13th, compared to 209K for the previous week.

Fed Chairman Jerome Powell will also be giving a speech tomorrow. Fed Chair Powell will be speaking at the Economic Club of New York Luncheon around 16:00 GMT Thursday.