Euro remains on the defensive as softer US PPI offers little relief

• EUR/USD remains under pressure near its lowest level since May 2025.
• Fed officials signal additional interest rate hikes may be needed to bring inflation under control.
• ECB rate hike expectations offer limited support as markets favour further Fed tightening.

EUR/USD remains on the back foot on Friday as the latest US producer inflation data draws little market reaction. The pair hovers near its lowest level since May 2025 as bets on further Federal Reserve (Fed) tightening continue to support the US Dollar (USD).

At the time of writing, EUR/USD trades around 1.1048 and is on track for a third straight weekly loss. The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, trades near 103.24, just below the 19-month high of 103.30 it touched earlier.

The Producer Price Index (PPI) rose 0.3% MoM in October, below the 0.4% forecast and down from 1.4% in September. Annual producer inflation picked up to 6.5% from 6.3%, just below the 6.6% forecast. Core PPI rose 0.3% MoM and 5.0% YoY, both in line with expectations.

The report did little to temper the rate hike bets that built this week after hotter-than-expected US consumer inflation and calls from Fed officials for further tightening.

Chicago Fed President Austan Goolsbee said on Friday that inflation would determine the path of interest rates and that the Fed still “has work to do” to bring it down. Earlier this week, Dallas Fed President Lorie Logan called for “at least two more 25-basis-point rate increases.” Before Tuesday’s CPI release, Fed Governor Christopher Waller said a 50-basis-point hike in December could be warranted if October core CPI rose around 0.3% or more. The reading came in at 0.3%.

According to the CME FedWatch Tool, traders are fully pricing in a 25-basis-point (bps) rate hike in December and a small chance of a 50 bps increase. Markets also expect another hike in January.

On the Eurozone side, preliminary data showed that Gross Domestic Product (GDP) grew 0.4% QoQ and 1.3% YoY in the third quarter, both in line with forecasts. Employment was flat on the quarter, missing expectations for a 0.2% increase, while annual employment growth slowed to 0.4% from 0.5%.

The European Central Bank (ECB) reiterated this week that it would set rates meeting by meeting as it assesses how higher energy costs feed through to wages and other prices. All 71 economists in Thursday’s Reuters poll expect the ECB to raise its deposit rate by 25 basis points to 2.75% in December. Most see it as the final hike of the cycle, while 25 expect another increase, most likely in early 2027.