Stronger US Dollar and Energy Concerns Drive Markets

The EUR/USD pair remains under pressure near 1.1250 during early Asian trading on Wednesday, as the Euro weakens against the US Dollar amid growing concerns over France’s fiscal situation and political uncertainty. Investors are now turning their attention to the minutes of the Federal Open Market Committee (FOMC), due later on Wednesday.

France’s Finance Minister said the government is prepared to use special constitutional powers to bypass Parliament and push through billions of euros in spending cuts if negotiations over next year’s budget fail to reach an agreement. Concerns over France’s ability to reduce its budget deficit, combined with a sharp selloff in the bond market last week, have increased fears of a potential sovereign debt crisis in the Eurozone. These concerns could continue to weigh on the Euro in the near term.

Pressure on French debt has intensified as political leaders struggle to bring the country’s budget deficit under control ahead of a divisive election in 2027. The prospect of a snap election in Spain is also adding to pressure on the Euro.

Meanwhile, expectations for further US Federal Reserve rate hikes have eased following softer-than-expected US jobs data released last week. This could limit gains in the US Dollar and provide some support for EUR/USD. According to the CME FedWatch Tool, interest-rate swaps showed traders pricing in an almost 20% probability of a Fed rate hike at its October meeting.

Gold prices held near $4,150 on Wednesday after rising 0.77% in the previous session, as improving oil supplies from the Middle East and easing Treasury yields reduced pressure on the Federal Reserve to raise interest rates this month.

Oil supplies from the Middle East have recovered to around four-fifths of their pre-conflict levels, according to analysts and research firms. The improvement has helped ease concerns over prolonged disruptions to regional energy flows, supporting greater stability in oil prices and reducing some inflationary pressure that could otherwise influence the Federal Reserve’s interest-rate outlook.

Meanwhile, Treasury yields retreated on Tuesday after longer-dated maturities had surged to fresh multi-decade highs a day earlier. The decline in yields has provided some support for gold by reducing the opportunity cost of holding the non-yielding precious metal.

Investors will closely watch the minutes of the Fed’s September meeting, due later Wednesday, for further clues about the central bank’s policy direction. Policymakers raised borrowing costs at that meeting for the first time in three years, making the minutes particularly important for assessing the outlook for future rate decisions.

Despite the recent support from lower Treasury yields and fading rate-hike expectations, gold remains in a relatively tight trading range in October and continues to trade below several closely watched moving averages.

Oil prices rose on Wednesday as traders weighed potential supply disruptions from a storm approaching major US oil-producing regions and renewed attacks by Yemen’s Iran-backed Houthis against Saudi Arabia. These risks offset the impact of increased crude supplies from the Middle East.

US forecasters said on Tuesday that a storm developing in the Gulf of Mexico was expected to become the first Atlantic hurricane of 2026 within two days, potentially disrupting oil and gas production facilities. The storm could potentially affect six refineries, while refineries across the US Gulf states represent roughly half of the country’s total refining capacity of 18.2 million barrels per day.

Meanwhile, US crude oil and gasoline inventories declined last week, while distillate stocks increased slightly, according to market sources citing data from the American Petroleum Institute. US crude inventories fell by 2.09 million barrels in the week ended October 2.

Despite the improvement in supply flows, geopolitical risks remain elevated. Saudi Arabia’s airports in Jazan and Najran were targeted in two attacks on Monday evening, according to the Saudi aviation authority, as tensions between Riyadh and Yemen’s Iran-backed Houthis intensified.

US-Iran relations also remain strained, with little sign of an immediate diplomatic breakthrough. US President Donald Trump said on Tuesday that it remained unclear who was leading Iran following months of conflict between the United States, Israel and Iran. Iran’s foreign ministry, however, said Washington was fully aware of its counterpart in Iran and understood how the country’s decision-making system operates.

Wall Street climbed on Tuesday, with the US 500 closing at a record high for the first time since mid-August as investors extended last week’s rally. Strong enthusiasm surrounding artificial intelligence, softer oil prices and a recovery in the US Treasury market helped equities overcome recent concerns about rising bond yields and broader economic uncertainty.

Despite the major indexes reaching new highs, market gains have remained heavily concentrated in the so-called Magnificent Seven and other mega-cap technology companies. Analysts have warned that the strength of the headline indexes may not fully reflect the performance of the broader market.

Another factor supporting Wall Street was a pause in the steep selloff in US government bonds. The benchmark 10-year Treasury yield fell 3.7 basis points to 5.276%, while the 30-year yield declined by nearly one basis point to 5.655%. Both yields had recently reached their highest levels since early 2002.

Concerns over an oil-driven inflation shock, the large amount of corporate debt being issued to finance AI infrastructure, hawkish central-bank policies and rising government debt have contributed to the recent bond-market selloff. The pressure has spread across global fixed-income markets, with political and fiscal concerns in France adding to investor anxiety.

Overall, Wall Street’s latest record-setting session reflects renewed investor confidence, but the rally remains dependent on several key factors, including the path of Federal Reserve policy, Treasury yields, oil prices and corporate earnings. While AI enthusiasm continues to drive the major indexes higher, persistent volatility in bonds and energy markets remains a potential source of risk for the broader equity market.