The EUR/USD currency pair declined to near 1.1380 during early Asian trading hours on Thursday, extending its losses as expectations for further US Federal Reserve (Fed) rate hikes strengthened the US Dollar against the Euro [1]. This move followed hawkish comments from several Fed officials, including Governor Michael Barr, who stated that 'further policy adjustments are likely to be needed' to control inflation. Fed President Tom Barkin and Boston Fed President Susan Collins also supported the recent interest rate increase, citing persistent inflationary pressures [1].
Recent US economic data contributed to the Dollar's strength. The preliminary reading of the US S&P Global Manufacturing PMI rose to 52.0 in September from 51.7 in August, surpassing expectations of 51.4. However, the Services PMI eased to 51.7 from 52.5, falling short of the market consensus of 52.0, and the Composite PMI declined to 51.7 from 52.5 [1]. Despite mixed PMI data, market participants are now pricing in a 69.7% probability that the Fed will raise rates by a quarter percentage point in October, up sharply from 48.7% a week earlier, according to the CME FedWatch tool [1].
On the European side, European Central Bank (ECB) policymaker Gabriel Makhlouf indicated that the ECB may consider another rate hike if high energy prices begin to affect other sectors, but noted there is currently no evidence of such second-round inflation effects. Markets are pricing in roughly a 45% chance of another 25 basis point ECB rate hike in October, with a further hike fully priced only by December at the earliest, according to Reuters [1].
Strategists at Societe Generale reiterated their long-term bullish outlook on the US Dollar, emphasizing that strong dollar fundamentals are expected to prevail over time, even as current market volatility remains subdued. The bank maintains its 'King Dollar Will Return' framework, suggesting that the Dollar's strength is likely to persist in the long run [1].
Fed Governor Barr's hawkish remarks were highlighted by an 8/10 FXS Speechtracker score, above the 7/10 historical average, indicating a stronger tightening bias and supporting further upside for the US Dollar [1].
CONCLUSION
The Euro's decline below 1.1400 against the US Dollar reflects heightened expectations for further Fed rate hikes, supported by hawkish Fed commentary and resilient US economic data. Market sentiment favors continued Dollar strength, with analysts and strategists maintaining a bullish long-term outlook for the Greenback. The ECB remains cautious, with future rate moves dependent on inflation developments.