EUR/USD dropped to a two-month low on Thursday as strong US business data and hawkish Fed commentary lifted the dollar. New York Fed President John Williams called another rate hike before year-end a reasonable expectation, and futures markets now price a much higher chance of an October move.
EUR/USD fell to 1.1378 on Thursday, with the US dollar holding near a two-month high. The move extends a decline built on stronger US data and a more hawkish tone from Federal Reserve officials.
US data intensifies inflation concerns
According to S&P Global, US private sector business activity expanded at its fastest pace in more than five years in September, with improvements in both services and manufacturing. However, price pressures also intensified alongside the growth. Several Fed officials backed last week's rate hike and again flagged inflation risks. Markets now put the probability of another rate hike in October at approximately 70%, up from 55% the previous day.
Williams calls another hike "reasonable"
New York Fed President John Williams added to the hawkish tone on Thursday, saying another rate hike before year-end would be a "reasonable" expectation. Speaking at the London Macro Policy Forum, he stopped short of endorsing an October move, stressing that policymakers must first collect incoming data. Even so, Fed funds futures now price around a 77.5% probability of an October hike, up sharply from about 53% a day earlier.
Williams also said the era of explicit forward guidance is over, with policymakers instead letting incoming data determine the timing of further tightening. Inflation remains the central concern: according to ActionForex, Williams said the Fed needs to return it to 2% "in a timely manner."
Oil prices add to the pressure
Elevated oil prices remain an additional factor behind the dollar's strength. Uncertainty surrounding US-Iran negotiations is keeping oil prices high and continuing to fuel inflation expectations.
On the technical side, the pair completed a downward move toward 1.1369 on the H4 chart before a corrective rebound to 1.1392, with a further move higher toward 1.1396 possible before a decline toward 1.1360. The MACD indicator supports the short-term bearish scenario, with its signal line below zero and pointing down.
Sources: ActionForex, ActionForex
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