Euro Falls to 1.1380 as Fed Hike Odds Jump to 69.7 Percent
The Euro slid against the Dollar after US manufacturing data exceeded expectations and Fed officials signaled further tightening.
Key points
- Euro weakens to 1.1380 as Fed rate hike expectations rise to 69.7 percent for October.
- US Manufacturing PMI hits 52.0 in September, exceeding forecasts and supporting the Dollar.
- Fed officials like Michael Barr signal further tightening is needed, boosting Dollar strength.
The Euro fell to 1.1380 against the US Dollar in early Asian trading on Thursday. The drop followed hawkish comments from Federal Reserve officials who indicated that more rate hikes are likely needed to control inflation. This sentiment strengthened the Dollar, pushing the currency pair lower despite mixed European data releases.
US Data Strengthens Dollar Position
US Manufacturing PMI rose to 52.0 in September, beating the forecast of 51.4. This strong reading supported the Dollar, while Services PMI eased to 51.7, missing the 52.0 consensus. The mixed signals from the US economy did not offset the impact of Fed policy expectations on the currency.
Markets now price a 69.7 percent chance of a Fed rate hike in October. This probability increased from 48.7 percent just one week earlier, according to CME FedWatch data. Such a sharp rise in expectations directly pressured the Euro, which remains sensitive to US interest rate decisions.
Fed Officials Signal Continued Tightening
Federal Reserve Governor Michael Barr stated that further policy adjustments are likely needed to manage inflation. He noted that risks to achieving the 2 percent inflation target have increased. Other Fed officials, including Tom Barkin and Susan Collins, also backed the recent rate increase, reinforcing the hawkish stance.
The FXS Fed Sentiment Index rose by 0.42 points to reach 148.81. This level firmly places Fed communication in hawkish territory, well above the 100 neutral mark. This consistent messaging from policymakers has sustained Dollar strength, creating a headwind for the Euro in the near term.
ECB Policy Remains Cautious
European Central Bank policymaker Gabriel Makhlouf said the bank may raise rates again if second-round inflation effects appear. He clarified that high energy prices have not yet spread to other sectors significantly. Markets currently price a 45 percent chance of another 25 basis point hike in October, according to Reuters.
Societe Generale strategists maintain their long-term view that Dollar fundamentals will prevail over time. They argue that strong US economic data supports a stronger Dollar, even if volatility is currently muted. This institutional outlook aligns with the recent market moves favoring the US currency.
