Why is the euro struggling as jumbo Fed hike bets bolster USD ahead of German CPI and ECB remarks?

• A firm bullish bias towards the USD leaves EUR/USD struggling to make meaningful headway.
• The USD draws support as US CPI data and hawkish Fed commentary raise the possibility of a 50 bps rate hike.
• Ahead of German CPI data, optimism over Iran diplomacy restrains the safe-haven dollar and lends support to the pair.

EUR/USD is stabilising above the mid-1.1100s in Wednesday's Asian session, with trading consolidating the previous day's steep losses after stronger-than-expected US consumer inflation data.

Support for the US Dollar (USD), and the resulting pressure on EUR/USD, persists as the latest inflation figures reinforce the prospect of a Federal Reserve (Fed) interest-rate increase in December. Tuesday's release from the US Bureau of Labor Statistics (BLS) showed that the headline Consumer Price Index (CPI) increased 0.4% in October. While slower than the previous month's 0.6% rise, this exceeded the market forecast of 0.3%. Excluding volatile food and energy prices, the core measure climbed 0.3%, equalling September's increase and coming in above the estimated 0.2%.

Hawkish remarks from Fed officials also triggered a sharp rally in the USD. Fed 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 8–9 December policy meeting. In his view, a hike of only 25 bps would jeopardise the Fed's credibility. Philadelphia Fed President Anna Paulson, meanwhile, said that policy must remain restrictive to bring inflation back down to 2%. Dallas Fed President Lorie Logan also indicated that interest rates may have to rise more quickly than previously expected.

Can Paulson’s hawkish stance and inflation risks sustain Dollar support?

A readiness to tighten policy further was evident in Fed’s Paulson's distinctly hawkish remarks. Her FXS Speechtracker score of 8.1/10 exceeded the historical average of 7.6/10, reflecting a preference for tighter policy. She emphasised acting “more aggressively if the inflation landscape worsens,” and maintaining a “somewhat restrictive,” policy stance, while recognising that underlying inflation remains stuck between 2.5% and 3%. Together, these points signal a clear willingness to prolong, or even speed up, 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 scope to tighten, a combination that generally supports the Dollar and yields.

With a daily move of 0.00 points, the FXS Fed Sentiment Index held at a firmly hawkish 145.28. This indicates that Paulson's comments were broadly in line with the market's already elevated expectations for restrictive policy. Read together, the high FXS Fed Sentiment Index and the above-baseline FXS Speechtracker score point to a consistently hawkish Fed message, leaving little room for a dovish reassessment in the near term.

Optimism about a possible diplomatic settlement to end the US-Iran war is, however, discouraging aggressive bullish positions in the safe-haven dollar. At a G7 meeting on Tuesday, US Secretary of State Marco Rubio said that 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. These developments could cushion EUR/USD's downside ahead of the final German CPI release and speeches from the ECB’s Cipollone and Lagarde.

EUR/USD: 4-hour price chart

Technical Outlook

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

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