Euro holds steady against US Dollar amid US debt strategy

EUR/USD remains stronger for the fourth successive trading day, hovering around 1.1680 during the Asian hours on Monday. The currency pair holds its ground as the US Dollar (USD) struggles under pressure from newly announced United States (US) fiscal moves. The Treasury Department surprised financial markets by pledging to at least double its buybacks of longer-dated government debt in an attempt to rein in rising bond yields. Treasury Secretary Scott Bessent noted that buybacks could expand beyond $4 billion, a strategic effort aimed at signaling that elevated yields do not accurately align with underlying economic fundamentals.

Despite this pressure on the Greenback, further upside for EUR/USD may remain limited due to safe-haven demand supporting the US Dollar amid escalating geopolitical tensions in the Middle East. Tensions flared after Iranian Foreign Minister Abbas Araghchi dismissed upcoming US sanctions as an act of desperation that would fail to weaken Tehran. Adding to the friction, Iranian Security Chief Mohsen Rezaei warned of "earthquake-like" retaliation if US President Donald Trump takes further action, reinforcing risk-off sentiment in global markets.

On the European front, the Euro (EUR) is drawing baseline support from sticky inflation figures and persistent expectations of ECB monetary policy. Eurozone consumer inflation expectations over the next year ticked down slightly to 2.9% from 3% in June. However, because price growth remains well above the European Central Bank's 2% target, markets continue to price in the possibility of additional monetary tightening following June’s interest rate hike.

ECB seen preparing structural LTRO framework as excess liquidity wanes

Analysts at Rabobank expect the ECB to move gradually toward a new framework for structural Longer-term Refinancing Operations as excess liquidity declines. They note that “the ECB could start discussions about the design of structural LTROs towards the end of this year, but the launch date depends on banks’ demand for reserves.” In their view, “12 months is a plausible maturity for these operations,” with the central bank likely favouring a more market-driven approach. Rabobank adds that “the ECB may issue the LTROs by auction, instead of the fixed-rate, full-allotment procedure,” aligning the new tool more closely with standard refinancing operations while still supporting reserve demand.