Title: EUR/USD Dips to Three-Month Low as Hawkish Fed Pushes US Dollar Higher
Author: Based on the original reporting by Cristian Mangani from FXStreet
Date: October 31, 2025
The euro (EUR) came under significant pressure against the US dollar (USD) during trading on Thursday, October 31, 2025. The EUR/USD currency pair dropped to its lowest level in over three months as a more assertive and hawkish tone from the US Federal Reserve reinforced investor demand for the greenback. This directional shift highlights investors’ growing expectations that the Federal Reserve may keep interest rates elevated for an extended period to curb stubborn inflationary pressures in the US economy.
In the wake of the Fed’s recent policy statements and strong economic data from the US, the US dollar has seen intensified buying interest across the board. Against this backdrop, the euro has borne the brunt of market adjustments as traders price in the growing divergence in monetary policy outlooks between the Fed and the European Central Bank (ECB).
Market Highlights:
– EUR/USD dropped below the key psychological level of 1.0600, reaching a low not seen since July 2025.
– The US Federal Reserve maintained the federal funds rate at a range of 5.25% to 5.50% during the October policy meeting.
– Fed Chair Jerome Powell signaled that further tightening remains a possibility if inflation persists above target.
– The US Dollar Index (DXY), which tracks the performance of the dollar against six major currencies, surged past 107.50.
– Investors are now pricing in reduced odds of near-term rate cuts, dampening enthusiasm for riskier currencies like the euro.
Federal Reserve Takes Hawkish Stance
At the conclusion of its two-day policy meeting on October 31, the Federal Reserve held rates steady, which was widely expected by markets. However, the post-meeting statement and Fed Chair Powell’s comments proved more significant in shifting sentiment toward the US dollar. Powell noted that progress toward inflation returning to the Fed’s 2% goal had been “uneven” and suggested the Fed remained prepared to resume tightening if price pressures failed to subside in a meaningful way.
Key takeaways from the Fed statement and Powell’s press briefing:
– Policy rate remains in restrictive territory, and officials agreed that holding rates at current elevated levels could still contribute meaningfully to disinflation.
– Powell emphasized that the process of bringing inflation back down is ongoing and that inflationary pressures, particularly in services, remain elevated.
– Officials expressed concern over the reacceleration in core inflation and continued resilience in consumer spending and labor markets.
– Some members of the Federal Open Market Committee (FOMC) alluded to the possibility of one more rate hike before year-end, depending on incoming economic data.
Strong US Data Reinforces Fed Outlook
Contributing to the hawkish sentiment were several key pieces of economic data released in the lead-up to the October Fed meeting. These data points painted a picture of an economy that remains robust despite higher borrowing costs, giving the central bank more room to maneuver without fear of derailing growth in the near term.
A snapshot of recent US economic data:
– Q3 GDP expanded at an annualized rate of 3.8%, above forecast estimates of 3.4%.
– September Personal Consumption Expenditures (PCE) inflation, the Fed’s preferred inflation gauge, ticked higher on a monthly basis.
– Non-Farm Payrolls for September posted a solid 230,000 job gain, signaling an ongoing tight labor market.
– The US unemployment rate remained at 3.8%, near historically low levels.
This string of strong economic data has had the effect of diminishing expectations that the Fed will need to ease policy quickly. As a result, yields on US Treasury notes have moved higher, attracting capital flows into the US dollar and away from lower-yielding currencies like the euro.
US Dollar Strength Propels
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