Title: EUR/USD Plunges to Three-Month Low Amid Hawkish Fed Stance and Robust Dollar Strength
Author: [Adapted & Expanded from original article by FXStreet News, Oct 31, 2025]
The euro experienced a sharp retreat against the US dollar on Thursday, sliding to its lowest level in over three months. The decline in the EUR/USD pair followed a firm policy stance from the US Federal Reserve, reinforcing expectations of a prolonged period of elevated interest rates. A renewed surge in the US dollar, coupled with falling Eurozone inflation data, triggered widespread selling in the euro, pushing the pair to new lows.
This article delves into the central reasons behind the currency pair’s movement and provides a comprehensive overview of the macroeconomic forces shaping market sentiment.
Key Highlights:
– EUR/USD dropped near the 1.0500 level, its lowest since late July
– A hawkish tone from Federal Reserve Chair Jerome Powell boosted demand for the US dollar
– Eurozone inflation cooled significantly, signaling waning price pressures
– US economic outlook continues to outperform, widening rate divergence between Europe and the US
– Market expectations for near-future US interest rate cuts are diminishing
EUR/USD Slides as the Dollar Rallies on Fed’s Hawkish Commentary
On October 31, the Federal Reserve held its policy meeting and decided to keep interest rates unchanged, as widely anticipated. However, market reaction was swift in one direction—toward a stronger dollar—triggered by the persistently hawkish tone from Fed Chair Jerome Powell during the post-meeting press conference.
– Powell reiterated the Fed’s commitment to its 2 percent inflation target, signaling policymakers were not yet confident inflation was sustainably declining.
– He emphasized that while no immediate rate hike was delivered, further tightening remains a possibility if economic data justifies it.
– He also noted that financial conditions, while somewhat tighter, are not yet restrictive enough to completely tame inflation risks.
This cautious but assertive stance reassured investors that the Fed is not rushing into rate cuts. As a result, US Treasury yields climbed, particularly in the short-to-intermediate term, leading to renewed USD buying.
The US Dollar Index (DXY), which tracks the greenback against a basket of major currencies, surged above 106.50, reflecting broad-based demand as traders priced in prolonged US monetary tightness.
Eurozone Disinflation Trends Add to Bearish Pressure on EUR
Simultaneously, economic data from the Eurozone offered little support to the single currency. The October Consumer Price Index (CPI) showed that inflation in the Eurozone cooled more than forecast, which may encourage the European Central Bank (ECB) to pause any further tightening measures.
– Headline inflation dropped from 4.3 percent in September to 2.9 percent in October, its lowest since July 2021
– Core inflation (excluding energy and food) came in at 4.2 percent, also easing from previous levels
– Eurostat’s data indicated energy prices were a significant drag on overall inflation, falling over 11 percent year over year
These numbers reflect a growing divergence between inflation dynamics in Europe and the United States. Whereas the Federal Reserve continues to signal its readiness to maintain a firm hold on interest rates, the ECB appears to be at the end of its hiking cycle.
This growing policy asymmetry has weakened the appeal of the euro, especially when compared to the relatively high yields offered by US Treasuries.
Financial Markets Increase Bets on Prolonged US Tightening
Traders are now recalibrating their expectations. Futures markets have trimmed bets on a rate cut from the Federal Reserve in the first half of 2026, adopting a “higher-for-longer” outlook.
According to the CME’s FedWatch Tool:
– The odds of a rate cut in the first quarter of 2026 are now below 35 percent
– Expectations for any rate relief have been pushed into the third quarter of 202
Read more on USD/CAD trading.