The U.S. dollar remained close to an 18-month high on Tuesday as elevated Treasury yields continued to support the currency.
Meanwhile, the euro recovered slightly from 17-month lows after cautious comments from the European Central Bank eased some concerns over the region’s inflation outlook.
Euro Rebounds From 17-Month Lows
The euro gained around 0.2% against the U.S. dollar to trade near $1.1230.
The move interrupted a prolonged decline driven by volatility in French government bonds and persistent pressure from higher Middle East energy costs.
Against the Japanese yen, the euro rose roughly 0.3%.
That advance ended an eight-session losing streak, marking its longest run of declines against the yen since 2024.
U.S. Dollar Index Holds Near Recent Peak
The U.S. Dollar Index slipped about 0.2% to 102.11.
However, the index remained close to the 102.21 high reached during the previous session.
Against the yen, the dollar was broadly unchanged near 157.92.
Currency traders continue to weigh persistent inflation pressures in the United States against signs of softer activity in the services sector.
ECB’s Lane Cautions on Inflation Pass-Through
ECB Chief Economist Philip Lane provided some support for the euro after suggesting that high energy prices have not yet caused strong second-round inflation effects across the Eurozone.
Lane said the extent to which higher energy costs will feed into broader inflation remains uncertain.
He stressed that policymakers have not yet seen particularly strong secondary effects and continue to monitor the situation closely.
His comments suggested that the ECB may continue to take a cautious and gradual approach to monetary policy rather than react aggressively to short-term inflation pressures.
ECB and Fed Both Signal Patience
Lane’s comments also echoed the more measured tone recently adopted by several Federal Reserve officials.
New York Fed President John Williams and other policymakers have indicated that they prefer to review additional economic data before deciding whether further interest rate increases are necessary.
This has increased expectations that the Fed could pause before making another move.
The upcoming release of the Federal Open Market Committee meeting minutes could provide further clues about how strongly policymakers support a pause in the rate-hiking cycle.
Fed Minutes Could Move the Dollar
Markets will closely watch the FOMC minutes for signs of caution over additional monetary tightening.
A more dovish tone could weaken the U.S. dollar, especially after recent employment data came in softer than expected.
FXTM market analyst Morton Lo noted that the minutes could become an important catalyst if policymakers appear increasingly reluctant to raise rates again.
High Treasury Yields Continue to Support the Dollar
Despite the euro’s rebound, the broader macroeconomic environment continues to favor the U.S. dollar.
Recent weakness in U.S. payroll data and softer services indicators have reduced expectations for an immediate Federal Reserve rate hike.
However, ongoing inflation pressures suggest U.S. interest rates could remain elevated for an extended period.
That outlook continues to support the dollar.
Yield Advantage Keeps Greenback Attractive
The benchmark U.S. 10-year Treasury yield remains close to multi-decade highs.
As a result, institutional investors continue to favor dollar-denominated assets because of their relatively attractive yields.
The dollar’s yield advantage remains particularly strong compared with lower-yielding Asian currencies and parts of the European bond market.
For now, that structural support could keep the U.S. dollar near its recent highs even if expectations for additional Federal Reserve rate hikes continue to decline.
