Why Does the Euro Remain Under Pressure Despite Softer US PPI?

• Selling pressure keeps EUR/USD close to its weakest level since May 2025.
• Further interest rate increases may be necessary to curb inflation, Fed officials indicate.
• With markets focused on further Fed tightening, expectations of ECB rate hikes provide little support.

Pressure on EUR/USD persists on Friday, with the pair trading close to its lowest level since May 2025. Expectations of further tightening by the Federal Reserve (Fed) underpin the US Dollar (USD), while the latest US producer inflation figures prompt little market response.

A third consecutive weekly decline is in sight for EUR/USD, which is trading around 1.1048 at the time of writing. Meanwhile, the US Dollar Index (DXY) stands near 103.24, marginally below its earlier 19-month peak of 103.30. The index measures the Greenback against a basket of six major currencies.

October's Producer Price Index (PPI) increased 0.3% MoM, easing from September's 1.4% rise and falling short of the 0.4% forecast. On an annual basis, producer inflation accelerated from 6.3% to 6.5%, narrowly missing expectations of 6.6%. In line with forecasts on both measures, core PPI increased 0.3% MoM and 5.0% YoY.

Expectations of rate hikes remained largely intact following the report. Those expectations had strengthened this week as US consumer inflation exceeded forecasts and Fed officials advocated further tightening.

Inflation will shape the course of interest rates, Chicago Fed President Austan Goolsbee said on Friday, adding that the Fed still “has work to do” to bring it down. 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 that an October core CPI increase of around 0.3% or more could justify a 50-basis-point hike in December. The actual reading was 0.3%.

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

Preliminary Eurozone figures put third-quarter Gross Domestic Product (GDP) growth at 0.4% QoQ and 1.3% YoY, matching forecasts on both measures. However, employment showed no quarterly growth against expectations of a 0.2% rise. Annual employment growth also 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. A December increase of 25 basis points, taking the deposit rate to 2.75%, is expected by all 71 economists surveyed in Thursday’s Reuters poll. While most expect that move to conclude the hiking cycle, 25 anticipate a further increase, most likely in early 2027.