Euro stays under pressure with little respite from softer US PPI

• EUR/USD stays close to its weakest level since May 2025 as selling pressure persists.
• Further interest rate increases may be necessary to curb inflation, Fed officials indicate.
• Expectations of further Fed tightening outweigh support from anticipated ECB rate increases.

The latest US producer inflation figures prompt little market response on Friday, leaving EUR/USD under pressure. Expectations of additional Federal Reserve (Fed) tightening underpin the US Dollar (USD), keeping the pair close to its weakest level since May 2025.

A third consecutive weekly decline is in prospect for EUR/USD, which trades at around 1.1048 at the time of writing. Meanwhile, the US Dollar Index (DXY), a measure of the Greenback against a basket of six major currencies, stands near 103.24 after earlier reaching a 19-month high of 103.30.

October’s Producer Price Index (PPI) increased by 0.3% MoM, undershooting the 0.4% forecast and slowing from September’s 1.4% rise. On an annual basis, producer inflation accelerated from 6.3% to 6.5%, marginally short of the 6.6% forecast. In line with expectations, core PPI advanced 0.3% MoM and 5.0% YoY.

Rate rise expectations had strengthened this week following above-forecast US consumer inflation and calls for further tightening from Fed officials. The producer price report did little to curb those expectations.

Speaking on Friday, Chicago Fed President Austan Goolsbee said the course of interest rates would depend on inflation, adding that the Fed still “has work to do” to reduce it. Dallas Fed President Lorie Logan had earlier this week urged “at least two more 25-basis-point rate increases.” Ahead of Tuesday’s CPI release, Fed Governor Christopher Waller said an October core CPI increase of around 0.3% or more could justify a 50-basis-point rise in December. The figure subsequently came in at 0.3%.

A December rate increase of 25-basis-point (bps) is fully priced in by traders, according to the CME FedWatch Tool, alongside a small probability of a 50 bps rise. A further increase in January is also expected by markets.

Preliminary third-quarter figures for the Eurozone put Gross Domestic Product (GDP) growth at 0.4% QoQ and 1.3% YoY, matching forecasts in both cases. Quarterly employment was unchanged, falling short of the expected 0.2% rise. Annual employment growth, meanwhile, eased from 0.5% to 0.4%.

As it evaluates the transmission of higher energy costs to wages and other prices, the European Central Bank (ECB) reaffirmed this week that rate decisions would be taken meeting by meeting. Thursday’s Reuters poll found that all 71 economists surveyed anticipate a 25 basis points increase in the ECB’s deposit rate to 2.75% in December. Most regard that as the cycle’s last rise; 25, however, expect a further increase, most likely in early 2027.