USD supported by jumbo Fed hike bets; euro struggles ahead of German CPI and ECB commentary

• A bullish USD backdrop leaves EUR/USD struggling to make meaningful headway.
• 50 bps hike prospects strengthen after US CPI data and hawkish Fed comments, underpinning the USD.
• Ahead of German CPI, prospects for Iran diplomacy restrain the safe-haven Dollar and lend support to the pair.

EUR/USD remains steady above the mid-1.1100s. During Wednesday's Asian session, the pair is consolidating Tuesday's steep losses, which followed stronger-than-expected US consumer inflation data.

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

A larger 50-basis-point (bps) increase at the December 8–9 policy meeting could be considered following the stronger-than-expected 0.3% core CPI reading, Fed Governor Christopher Waller warned. He added that a hike of only 25 bps would jeopardise Fed credibility. Philadelphia Fed President Anna Paulson separately said policy must remain restrictive to bring inflation back to 2%. Dallas Fed President Lorie Logan also suggested that interest rates may need to rise faster than previously expected. Together, these comments triggered a sharp rally in the USD.

Inflation risks underpin Dollar as Fed’s Paulson strikes hawkish tone

At 8.1/10, the FXS Speechtracker score for Fed’s Paulson exceeded the historical average of 7.6/10, reflecting a distinctly hawkish message and a preference for tighter policy. Her focus on moving “more aggressively if the inflation landscape worsens,” maintaining “somewhat restrictive” policy and recognising that underlying inflation remains stuck between 2.5% and 3% points to a clear readiness to prolong, or even accelerate, the rate-hiking cycle if necessary. Her references to an economy stronger than expected and a resilient labour market further suggest that the Fed sees scope for additional tightening. That combination generally supports the Dollar and yields.

A 0.00-point daily change left the FXS Fed Sentiment Index firmly hawkish at 145.28. This indicates that Paulson’s comments were broadly in line with already elevated market expectations for restrictive policy. With the sentiment index high and the FXS Speechtracker score above its baseline, Fed communication appears consistently hawkish, leaving limited room for a near-term dovish repricing.

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. At Tuesday's G7 meeting, US Secretary of State Marco Rubio said major combat operations in Iran were unnecessary. His remarks followed comments on Monday from President Donald Trump, who said the US was maintaining the status quo in the Iran war because he currently saw no reason to escalate it. This could cushion EUR/USD against further declines ahead of the final German CPI release and speeches from the ECB’s Cipollone and Lagarde.

4-hour chart: EUR/USD

Technical Outlook

At 1.1248, the 200-period Exponential Moving Average (EMA) remains above EUR/USD, leaving the near-term outlook bearish within the range that has contained trading for roughly the past month. This EMA, near 1.1248, provides the first upside resistance. Only a sustained move above it would relieve the prevailing downward pressure. For bearish traders, a sustained breach of range support above the 1.1100 level is needed before positioning for additional declines.

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