Euro struggles as jumbo Fed hike bets support USD, traders await German CPI and ECB-speak

The EUR/USD pair holds steady above mid-1.1100s during the Asian session on Wednesday, consolidating the previous day's heavy losses that followed the release of hot US consumer inflation figures.

The US Bureau of Labor Statistics (BLS) reported on Tuesday that the headline Consumer Price Index (CPI) rose 0.4% in October, compared to the 0.6% increase reported in the previous month and above the market expectation of 0.3%. Moreover, the core gauge, which excludes volatile energy and food prices, was up 0.3%, matching September's increase and surpassing estimates of 0.2%. The data reaffirmed the likelihood of a potential interest-rate hike by the Federal Reserve (Fed) in December, which continues to support the US Dollar (USD) and act as a headwind for the EUR/USD pair.

Meanwhile, Fed Governor Christopher Waller warned that a stronger-than-expected core CPI reading of 0.3% could prompt him to consider a larger 50-basis-point (bps) rate increase at the December 8–9 policy meeting. Waller added that hiking only 25 bps would put Fed credibility at risk. Separately, Philadelphia Fed President Anna Paulson noted that ongoing restrictive policy is needed to push inflation back down to 2%, while Dallas Fed President Lorie Logan suggested that rate hikes may need to happen at a faster pace than previously anticipated. This led to a sharp USD rally.

Fed’s Paulson leans hawkish as inflation risks keep Dollar bid

Fed’s Paulson delivered a distinctly hawkish message, with an FXS Speechtracker score of 8.1/10, above the 7.6/10 historical average and consistent with a bias toward tighter policy. The emphasis on moving “more aggressively if the inflation landscape worsens,” keeping policy “somewhat restrictive,” and acknowledging that underlying inflation is stuck between 2.5% and 3% underscores a clear willingness to extend or even accelerate the hiking cycle if needed. References to a stronger-than-expected economy and robust labor market reinforce the idea that the Fed still sees room to tighten, a mix that is typically supportive for the Dollar and yields.

The FXS Fed Sentiment Index was unchanged on the day, with a 0.00-point move leaving the index at a firmly hawkish 145.28, signaling that Paulson’s remarks broadly matched already elevated market expectations for restrictive policy. The combination of a high FXS Fed Sentiment Index level and an above-baseline FXS Speechtracker score suggests that the Fed’s communication remains consistently hawkish, limiting scope for a dovish repricing in the near term.

However, hopes for a potential diplomatic resolution to end the US-Iran war hold back traders from placing aggressive bullish bets on the safe-haven buck. In fact, US Secretary of State Marco Rubio said on Tuesday at a G7 meeting that there was no need for major combat operations in Iran. This follows President Donald Trump's comments on Monday that the US was keeping the Iran war at status quo, as he does not currently see any reason to escalate the war. This could limit the downside for the EUR/USD pair ahead of the final German CPI and speeches by the ECB’s Cipollone and Lagarde.

EUR/USD 4-hour chart

Technical Analysis

The EUR/USD pair holds below the 200-period Exponential Moving Average (EMA) at 1.1248, keeping the near-term bias bearish within a familiar range held over the past month or so. On the topside, initial resistance is located at the 200-period EMA near 1.1248, and a sustained break above this level would be needed to ease the current downside pressure. Meanwhile, bearish traders need to wait for a sustained break below the trading range support, ahead of the 1.1100 mark, before positioning for further losses.

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