EUR/USD Price Forecast: Fears of aggressive Fed tightening lift US Dollar

The Euro (EUR) surrenders its early gains and turns marginally lower at around 1.1220 against the US Dollar (USD) during the European trade on Tuesday. The major currency pair turns upside down as the US Dollar draws strength from warning that the Federal Reserve (Fed) could adopt an aggressive monetary tightening approach if United States (US) inflationary pressures continue to rise.

In the European trade, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, recovered its early losses and turned marginally positive above 101.70.

“Half-point Fed rate hike may be needed in December, if October core CPI inflation comes in around 0.3% or higher,” Fed Governor Christopher Waller said in a speech during the European trade.

Waller flags risk of half-point december hike as inflation worries mount

Fed’s Waller delivered a distinctly more hawkish tone, with the FXS Speechtracker score at 9/10 versus a historical average of 7.3/10, underscoring a clear shift toward stronger tightening bias relative to the established baseline. The explicit conditional endorsement of a half-point FED rate hike in December if October core CPI prints around 0.3% or higher, alongside support for at least a quarter-point move even on better data, signals a low tolerance for any renewed drift away from the inflation target. Emphasis on the breadth of price increases, expectations of further producer price pressures, and the view that policy has not been as restrictive as previously thought all reinforce a message that additional rate hikes are likely and that real rates must rise to reassert control over inflation, a backdrop typically supportive of the Dollar and negative for risk-sensitive assets.

The FXS Fed Sentiment Index rose by 3.17 points to 145.50, confirming a deeper move into hawkish territory well above the neutral 100 line and aligning with the elevated FXS Speechtracker score. This combination points to a market narrative of renewed tightening resolve, with traders likely to price higher terminal rate odds and a stronger Dollar path if incoming inflation data fail to show convincing progress toward the Fed’s target.

Meanwhile, investors await the US Consumer Price Index (CPI) data for October, which will be published at 13:30 GMT.

US inflation expected to cool ahead of key Fed meeting

Economists at Deutsche Bank highlight that, in contrast to September’s strong print, they now anticipate a clear moderation in price pressures. They note that “this time, our US economists expect inflation to have come down from its September pace, with both headline and core at +0.20% on the month,” underscoring expectations for a more subdued October CPI profile going into the next Fed meeting.

On the Euro front, European Central bank (ECB) officials have also supported the need to tighten monetary conditions further.

Lane leans hawkish as inflation risks keep Euro bulls alert

FXS Speechtracker shows a stronger-than-usual impact from this speech, with the score rising to 7.6 versus a 6.3 historic average, underscoring a clear hawkish tilt. Emphasis on Europe’s “reassuring” resilience and the need to fix French fiscal issues in Paris signals limited tolerance for fiscal slippage and supports a firmer Euro bias.

Guidance that core and food inflation are expected to quicken, with inflation likely “a little bit” over 4% at year-end and “more to come” in terms of peak inflation, reinforces upside price risks. The remark that it would be prudent to hike in December if data do not shift anchors expectations for further tightening, backing Euro upside on rate-differential grounds while keeping rate-sensitive assets on the defensive.

EUR/USD Technical Analysis

In the daily chart, EUR/USD trades at 1.1219. The pair holds a modestly constructive near-term bias as it trades just above the 20-day exponential moving average (EMA) at 1.1211, suggesting emerging support around the recent breakout area. The Relative Strength Index (RSI) at 48.6 sits near the neutral band, hinting that downside momentum has faded without yet signaling an overbought or strongly trending market.

On the downside, initial support is seen at the 20-day EMA around 1.1211, where a daily close below would expose a deeper pullback and weaken the current stabilizing tone. A sustained defense of this moving average would keep the short-term structure underpinned, allowing buyers to retain control while momentum consolidates.

(The technical analysis of this story was written with the help of an AI tool. Know more.)