The EUR/USD pair weakened for the second consecutive day, falling to around 1.1116 during Wednesday’s American trading session. Pressure on the euro intensified as the US dollar strengthened broadly; the US Dollar Index hovered near 102.70, approaching its year-to-date high of 102.94.
The dollar’s ascent is driven by growing expectations that the Federal Reserve will raise interest rates again in December. The market is currently pricing in an approximately 88.5% probability of a 25-basis-point hike, and an 11.5% chance of a larger 50-basis-point increase.
These expectations gained momentum after the US Consumer Price Index (CPI) rose by 0.4% month-on-month in October—surpassing the 0.3% forecast. Core CPI also climbed by 0.3%, exceeding the projected 0.2% and signaling that inflationary pressures remain robust.
Comments from Federal Reserve Governor Christopher Waller have further fueled speculation regarding a 50-basis-point hike. MUFG notes that while such a scenario remains a risk, its realization could further bolster the dollar and push the EUR/USD pair below the 1.1000 level.
In Europe, political and fiscal uncertainty in France, alongside speculation surrounding the position of ECB President Christine Lagarde, has weighed on the euro. Although the European Central Bank (ECB) is still perceived as hawkish, the divergence in policy expectations relative to the Federal Reserve continues to give the US dollar the upper hand in the near term.