The Euro dropped to 1.1116 as the US Dollar Index climbed to 102.70, driven by October CPI data showing a 0.4% MoM increase and growing market speculation regarding a potential 50-basis-point Fed rate hike in December.
The pair slid 0.42% to a two-week low around 1.1116 as markets price an 88.5% chance of a 25bp Fed hike in December and even an 11.5% chance of 50bp, after October CPI beat forecasts (0.4% MoM vs 0.3% expected). MUFG warns a 50bp move could push EUR/USD below 1.1000. Persistent French political and fiscal problems add euro-side pressure.
The dollar strengthened across the board as hotter-than-expected October CPI (0.4% MoM vs 0.3% forecast) and Waller's suggestion that a strong print may warrant a 50bp hike lifted rate-hike expectations, with three more quarter-point increases priced by mid-2027. The DXY rose to around 102.70, near its year-to-date high of 102.94.
The Euro fell 0.42% to a two-week low of 1.1116 as the US Dollar strengthened on expectations of a more aggressive Federal Reserve policy. Markets are pricing an 88.5% probability of a 25-basis-point hike in December, with an 11.5% chance of a 50-basis-point move following hotter-than-expected October CPI data.
Traders now expect the Fed to hike more aggressively, with a December hike almost fully priced and even a 50bp move possible after hotter US inflation data, which strengthens the dollar against the euro.
MUFG analysts say a 50bp Fed hike would likely drag the pair below the 1.1000 level, though they see that scenario as a risk rather than their base case.
Hotter US inflation data and Fed officials, notably Governor Waller, signalling that a stronger print may warrant a larger 50bp rate hike, pushing traders to price a December hike with 88.5% probability.
The Dollar Index trades around 102.70, close to its year-to-date high of 102.94 reached in October.