US Dollar rises as inflation concerns and Fed rate hike bets weigh on Euro

• Strong US CPI figures lift expectations of a December Fed rate rise, weighing on EUR/USD.
• Ahead of Friday’s US PPI release, higher oil prices linked to Iran add to inflation concerns.
• Following a final anticipated rate rise in December, economic uncertainty is expected to bring the ECB’s monetary tightening cycle to a halt.

With persistent US inflation concerns and expectations of higher interest rates supporting the US Dollar (USD), EUR/USD is falling for a fourth consecutive day. The pair is trading near 1.1050 in Friday’s Asian session. Traders await the US October Producer Price Index (PPI) release later on Friday for further direction.

This week’s stronger-than-forecast US Consumer Price Index (CPI) inflation figures have strengthened expectations that the Fed will raise rates in December. According to Fed Governor Christopher Waller, a 50-basis-point increase should be considered if core inflation stays elevated.

The probability markets assign to a 50-basis-point rise has climbed to 14.5%, from zero before Tuesday’s inflation release. Friday’s US PPI figures will now be scrutinised for further indications of inflation pressures and the US central bank’s interest-rate decision. Forecasts point to a 6.6% YoY increase in headline PPI for October, with core PPI expected to rise by 5.0% YoY over the same reporting period.

Hopes of an agreement to end the conflict were dashed on Thursday when US President Donald Trump said the US did not need a deal with Iran. The news sent oil prices sharply higher, adding to concerns about inflation.

Market experts, meanwhile, question whether the European Central Bank’s (ECB) monetary tightening cycle is sustainable over the longer term. The ECB has already increased interest rates twice this year, and a final rise is anticipated at its December meeting. Thereafter, mounting economic uncertainty is expected to prevent further tightening.

Euro gains marginal support as Lane highlights consensus and inflation risks

A score of 6.2/10 for the ECB’s Lane on FXS Speechtracker matches the historical average exactly. It suggests a steady, mildly cautious position rather than any significant change in overall tone. By rejecting “dots” and setting a “high bar” for directional forward guidance, Lane signals a preference for flexibility. That approach constrains the Euro’s immediate upside while avoiding a dovish pre-commitment that might weaken policy credibility.

Despite acknowledging the reversal in energy prices, Lane strikes a modestly hawkish note by using underlying inflation to assess price developments one year ahead and warning that an absence of second-round effects would be surprising. His emphasis on an instrument to address multiple bond-market equilibria signals a willingness to counter fragmentation. This helps underpin Euro stability and restrain expectations of rate cuts, even if headline inflation falls temporarily.