Can Euro Escape Pressure Near May 2025 Lows as Fed Hawks Bolster Dollar?

• EUR/USD remains under pressure near its weakest level since May 2025 as sustained US Dollar strength weighs on the pair.
• The Greenback loses ground following above-forecast US jobless claims, but hawkish Fed expectations cushion the decline.
• Persistent worries over Eurozone growth limit the support from expectations of an ECB rate hike.

EUR/USD remains largely unchanged in Thursday’s American session, with the US Dollar (USD) surrendering some gains after setting a new year-to-date high. The pair is trading near 1.1087 at the time of writing, having recovered from an intraday trough of 1.1066, its lowest since May 2025.

Some of the Greenback’s momentum faded as US Initial Jobless Claims climbed to 200K from the previous week’s 191K, exceeding expectations of 195K. The four-week average was unchanged at 195.25K. After touching 103.08 earlier in the session, the US Dollar Index (DXY) is trading around 102.95.

Increasing calls by Federal Reserve (Fed) officials for additional rate increases to contain inflation continue to underpin the Greenback. Speaking on Thursday, Cleveland Fed President Beth Hammack said policy must turn restrictive, noting that rising energy costs were feeding into other prices. While smaller rate moves cause less disruption to the economy, she said a bigger increase could become necessary if the Fed falls behind.

Support for further policy tightening also came earlier this week from Dallas Fed President Lorie Logan and Philadelphia Fed President Anna Paulson. Ahead of Tuesday’s inflation release, Fed Governor Christopher Waller said a monthly core inflation figure of around 0.3% could bring a half-point December rate increase into consideration.

With core inflation registering 0.3%, traders have now fully priced in a rate increase in December. The preferred outcome remains a 25-basis-point (bps) hike, although a larger 50 bps move carries a small probability. Expectations also point to further Fed rate increases into 2027.

Inflation risks stemming from energy prices remain a key concern following US President Donald Trump’s statement on Truth Social that the US does not need an agreement with Iran. Friday’s US Producer Price Index (PPI) is now the next inflation indicator on traders’ radar.

Can the Euro find support as ECB caution contrasts with Fed tightening?

A 25 bps increase in the European Central Bank’s (ECB) deposit rate to 2.75% in December is expected by all 71 economists in a Reuters survey released on Thursday. Within that group, 46 anticipate that December will mark the cycle’s last hike. The other 25 forecast a further increase, most likely during the first quarter of 2027.

Rabobank strategists place the ECB “among those banks also likely to tighten policy,” noting that “the Fed is not the only G10 central bank widely expected to hike rates in December,”. Their caution, however, is that “the ECB, however, could prove to be reluctant to hike rates beyond December,”. They cite “the last ECB press conference” as having “suggested that the GC were becoming increasingly concerned about the growth outlook.”

Rabobank’s assessment is that “market pricing for 2027 ECB rate rises remains too aggressive,”. The bank also flags political uncertainty, adding that “another factor that could weigh on the EUR in the coming months are uncertainties about what a far-right president in France could mean for EU cooperation going forward.”