USD gains support from jumbo Fed hike bets as euro struggles ahead of German CPI and ECB commentary

• With sentiment towards the USD remaining bullish, EUR/USD finds little scope to make meaningful headway.
• A 50 bps rate rise became a stronger possibility after the US CPI release and hawkish Fed remarks, lending support to the USD.
• Ahead of German CPI, prospects for diplomacy over Iran restrain the safe-haven dollar and underpin the pair.

Hot US consumer inflation figures triggered heavy losses in EUR/USD on Tuesday. During Wednesday’s Asian session, the pair is consolidating that decline, holding steady above the mid-1.1100s.

October’s headline Consumer Price Index (CPI) increased by 0.4%, the US Bureau of Labor Statistics (BLS) said on Tuesday. Although below the previous month’s 0.6% rise, the figure exceeded the market forecast of 0.3%. Excluding volatile food and energy prices, the core measure advanced 0.3%, in line with September but above estimates of 0.2%. By reinforcing the prospect of a potential December interest-rate increase from the Federal Reserve (Fed), the figures continue to underpin the US Dollar (USD), weighing on EUR/USD.

A sharper USD rally followed hawkish comments from Fed officials. Governor Christopher Waller cautioned that the above-forecast core CPI reading of 0.3% could lead him to consider a larger 50-basis-point (bps) increase at the December 8–9 policy meeting, adding that raising rates by only 25 bps would jeopardise Fed credibility. Philadelphia Fed President Anna Paulson, meanwhile, said policy needed to remain restrictive to bring inflation back to 2%. Dallas Fed President Lorie Logan also indicated that rates might have to rise more quickly than previously envisaged.

Dollar stays supported as Fed’s Paulson signals hawkish stance on inflation

An FXS Speechtracker score of 8.1/10, against a historical average of 7.6/10, highlighted the distinctly hawkish tone of Fed’s Paulson and her preference for tighter policy. With underlying inflation remaining between 2.5% and 3%, her emphasis on acting “more aggressively if the inflation landscape worsens,” and maintaining “somewhat restrictive,” policy points to a clear readiness to prolong, or even accelerate, the rate-hiking cycle if necessary. Her references to an economy performing better than expected and a resilient labour market further suggest that the Fed believes it has room to tighten. That combination typically supports the dollar and yields.

A daily change of 0.00 points left the FXS Fed Sentiment Index at a firmly hawkish 145.28. The unchanged reading indicates that Paulson’s comments were broadly in keeping with the market’s already elevated expectations for restrictive policy. Taken together, the high index level and above-average FXS Speechtracker score point to consistently hawkish Fed communication, leaving limited room for a dovish repricing in the near term.

Prospects for a diplomatic settlement to end the US-Iran war are nevertheless discouraging traders from taking aggressive bullish positions in the safe-haven dollar. Speaking at a G7 meeting on Tuesday, US Secretary of State Marco Rubio said major combat operations in Iran were unnecessary. His remarks followed President Donald Trump’s statement on Monday that the US was maintaining the status quo in the Iran war, as he currently saw no reason to escalate it. Ahead of the final German CPI release and speeches from the ECB’s Cipollone and Lagarde, this could help contain EUR/USD’s downside.

EUR/USD holds its range on the 4-hour chart

Technical outlook remains bearish

Trading beneath the 200-period Exponential Moving Average (EMA) at 1.1248 leaves EUR/USD with a bearish near-term bias, though it remains within the familiar range of the past month or so. The 200-period EMA near 1.1248 provides the first upside resistance; a sustained move above it would be required to relieve the prevailing downward pressure. For bearish traders, positioning for further declines would first require a sustained break of the range support ahead of 1.1100.

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