Euro plunges to 17-month low as hot US inflation fuels Fed rate hike bets

• EUR/USD drops 0.55% to around 1.1135, reaching its lowest level since May as the US Dollar strengthens.
• US inflation accelerated to 3.7% in September, reinforcing expectations of further interest rate hikes.
• French fiscal concerns and rising bond yields add pressure on the Euro.

EUR/USD extends its decline on Wednesday, losing 0.55% on the day to trade around 1.1135 at the time of writing, its lowest level since May 2025. The pair breaks below the 1.1150 level, which had limited losses earlier this week, as stronger-than-expected United States (US) inflation data fuels expectations of further monetary tightening by the Federal Reserve (Fed).

The US Dollar (USD) gains momentum following the release of the September Consumer Price Index (CPI), which rose by 3.7% YoY, accelerating from 3.4% in August and exceeding market expectations, according to the Bureau of Labor Statistics (BLS). Core CPI, which excludes volatile food and energy prices, also accelerated to 2.6% YoY from 2.4% previously. On a monthly basis, headline and core inflation increased by 0.6% and 0.3%, respectively, highlighting persistent price pressures in the US economy.

These figures reinforce expectations that the Fed may need to maintain a restrictive monetary policy stance for longer to bring inflation under control. Following the release, markets raise the chance of a 25-basis-point (bps) rate hike in October to 47%, compared with 22% the previous day. Investors also assign a 44% chance to a second consecutive 25-bps increase in December.

The repricing of Fed interest rate expectations provides strong support to the Greenback. The US Dollar Index (DXY), which tracks the currency against a basket of six major peers, advances 0.46% to around 102.70, reaching its highest level since April 2025.

The surge in US Treasury yields provides additional support to the Greenback. The benchmark 10-year US Treasury yield climbs near 5.33% at the time of writing, up from around 5.20% before the inflation report, as investors reassess the outlook for Fed interest rates. Higher bond yields increase the attractiveness of US Dollar-denominated assets, adding further downward pressure on EUR/USD.

Meanwhile, the Euro (EUR) remains under pressure amid persistent fiscal concerns in France. Investors question the government's ability to secure parliamentary approval for its deficit-reduction budget, with the spread between French and German 10-year bond yields hovering near 140 basis points.

Bank of France Governor and European Central Bank (ECB) policymaker Emmanuel Moulin warns that France must urgently demonstrate its commitment to fiscal consolidation, while ECB President Christine Lagarde stresses that the solution to the country's debt challenges lies primarily in domestic fiscal policy.

Investors now await Friday's final September Harmonized Index of Consumer Prices (HICP) report for further clues on Eurozone inflation.

EUR/USD technical analysis

In the one-hour chart, EUR/USD trades at 1.1139, maintaining a bearish near-term tone as the pair holds below both the 100-period simple moving average (SMA) at 1.1194 and the 200-period SMA at 1.1209. The recent slide has pushed the 14-period Relative Strength Index (RSI) down into oversold territory near 22, which hints at stretched downside momentum but has yet to trigger a decisive rebound while price remains capped beneath these key averages.

On the topside, initial resistance appears at 1.1150, ahead of the 100-period SMA at 1.1194 and the 200-period SMA at 1.1209, with a stronger barrier at the horizontal level of 1.1215; a recovery through this cluster would open the way toward 1.1270 and 1.1312. On the downside, immediate support is seen at 1.1100, followed by a deeper floor at 1.1050, where any extension of the current decline could slow as oversold conditions encourage profit-taking.

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