EUR/USD slides to three-month low as Fed’s hawkish tone fuels US Dollar rally

• EUR/USD slides to a three-month low as the Fed’s hawkish tone boosts the US Dollar.
• The US Dollar Index hovers near 99.80, on track for a second straight monthly gain amid fading rate-cut bets.
• Policy divergence widens after the Fed’s “hawkish cut” and the ECB’s steady-rate stance.

The Euro (EUR) weakens further against the US Dollar (USD) on Friday, with EUR/USD slipping to a three-month low. The pair remains under pressure as the Greenback draws support from the Federal Reserve’s (Fed) hawkish tone after delivering a widely expected 25-basis-point rate cut earlier this week.

At the time of writing, EUR/USD is trading around 1.1523, extending losses for the third consecutive day and on track to post its first monthly decline in three months.

Meanwhile, the US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, is hovering near three-month highs around 99.80. The index is on course for a second consecutive monthly gain, supported by fading expectations of another interest rate cut this year.

As the dust settles from this week’s central bank decisions, policy divergence between the Federal Reserve (Fed) and the European Central Bank (ECB) has become more pronounced. The Fed delivered a “hawkish cut” on Wednesday, lowering the federal funds rate to a range of 3.75%-4.00% in a 10-2 vote.

The move, in line with market expectations, was accompanied by cautious guidance from Chair Jerome Powell, which tempered expectations of another rate reduction in December, a move investors had largely considered a done deal.

In contrast, the ECB kept its deposit facility rate unchanged for the third consecutive meeting, citing that inflation remains close to the central bank’s 2% medium-term target and that the Eurozone economy continues to expand despite global headwinds, supported by a resilient labor market.

The central bank reaffirmed its data-dependent, meeting-by-meeting approach, emphasizing that it is not pre-committing to any specific rate path and will adjust policy in line with incoming data and evolving inflation dynamics.

Earlier in the day, comments from Fed officials reinforced the central bank’s cautious stance. Atlanta Fed President Raphael Bostic said the Fed’s mandates are “in tension,” adding that he supported this week’s rate cut because policy remains in restrictive territory.

Meanwhile, Governor Adriana Kugler Hammack noted she would have preferred to hold rates steady, emphasizing that the central bank is “not on a preset course.” Bostic also welcomed Chair Powell’s remarks that a December rate cut is “far from a foregone move."