EUR/USD softens to approximately 1.1445 during the early Asian session on Wednesday. Fed’s Collins delivered hawkish remarks, indicating her support for a rate hike. Merz’s party experienced a significant defeat in a regional election, impacting sentiment within the Eurozone. The EUR/USD pair declines to approximately 1.1445 in the early Asian trading hours on Wednesday. The US Dollar strengthens against the Euro on the hawkish stance of the US Federal Reserve and the prospect of further interest rate hikes. Traders prepare for the upcoming preliminary readings of the Purchasing Managers’ Index from Germany, the Eurozone, and the US, scheduled for release later on Wednesday. Boston Fed President Susan Collins stated on Tuesday her endorsement of the US central bank’s recent decision to increase interest rates, citing concerns that future inflation may exceed the 2% target. “I now see an increased likelihood of future scenarios in which inflation remains notably above 2%,” Collins added.
Earlier on Monday, St. Louis Fed President Alberto Musalem indicated that further rate increases might be required to meet the Fed’s inflation target. The US central bank last week opted to elevate its interest rate target by 25 basis points to the 3.75%-4.00% range, with policymakers indicating the possibility of an additional rate increase before the year’s conclusion. Traders are currently factoring in an approximately 89.2% probability of a US rate increase in December, as indicated by the CME FedWatch Tool. Rising political risks in Germany may dampen Eurozone sentiment and exert downward pressure on the shared currency. The far-right Alternative for Germany party achieved significant victories, delivering Chancellor Friedrich Merz’s conservative coalition its most severe regional election loss in postwar Germany, thereby rendering the government precarious.
Strategists point out that the “renewed decline in the price of oil is a positive for the EUR, given the euro area’s terms of trade and its dependence on energy imports.” They add that yield differentials continue to work in the single currency’s favour, noting that “yield spreads remain supportive, with a narrow (2Y Germany-US yield spread only) FV estimate hovering just above 1.15.” Fed’s Collins conveyed a distinctly more hawkish stance, as evidenced by the 8.1/10 FXS Speechtracker score, which significantly exceeds the historical average of 6.6/10, highlighting a stronger dedication to tightening measures. The emphasis on a “increased likelihood” that inflation remains “notably above 2%” and the perspective that a robust labour market enables policy to concentrate on reinstating price stability following years of heightened inflation suggests backing for maintaining the FEDERAL FUNDS RATE at a somewhat more restrictive level for an extended period. This combination of heightened inflation concern and confidence in labour market resilience is generally supportive of the Dollar and detrimental to risk-sensitive currencies.
The FXS Fed Sentiment Index increased by 0.53 points to 150.49, underscoring that the overarching communication from the Federal Reserve continues to be firmly positioned in hawkish territory. With the index significantly exceeding the neutral 100 mark and the latest speech registering well above the established baseline, the data indicate ongoing upside risks for U.S. yields and the Dollar as markets anticipate an extended duration of restrictive policy. In the daily chart, EUR/USD exhibits a bearish near-term tone as it remains positioned below both the 100-day moving average and the center line of the Bollinger Bands’ 20-day simple moving average. Price is positioned just above the lower Bollinger band, indicating that the pair is lingering near the lower boundary of its recent volatility range.
Meanwhile, the Relative Strength Index (14) at 31.7 approaches oversold levels, suggesting an extended downside momentum rather than signalling a definitive reversal. On the topside, initial resistance emerges at the 100-day moving average at 1.1540, followed closely by the 20-day simple moving average center band at 1.1562. Together, these levels define a dense cap ahead of any meaningful recovery, with the upper Bollinger band near 1.1700 acting as a more distant hurdle. On the downside, immediate support is observed at the lower Bollinger band near 1.1425. A sustained breach below this level would likely facilitate a continuation of the bearish trend, whereas maintaining position above it could initiate a phase of consolidation beneath the mentioned moving-average cluster.
