EUR/USD Outlook: Dollar Gains as Fed Rate Hike Expectations Rise

The US Dollar continues to demonstrate broad market strength, supported by solid economic data and its role as a key safe-haven asset. Global economic expansion remains closely tied to technology investments, with AI contributing 0.45 percentage points to the UK's 1.8% GDP growth and prompting Germany to raise its 2026 growth forecast from 0.5% to 1.3%. However, any prospective downturn in the technology sector risks dampening global growth, which would further boost safe-haven demand for the US Dollar while keeping EUR/USD under pressure.

US Inflation Data Boosts Fed Tightening Expectations

Would you like to read more market analysis about Dollar, Benefits, and Scenario?

Recent US economic releases have reinforced the case for sustained monetary tightening by the Federal Reserve. US consumer prices rose by 0.4% month-over-month in October, exceeding the forecasted 0.3%, while core CPI increased by 0.3% against an expected 0.2%. Speaking in London, Fed Governor Christopher Waller expressed support for a 25-basis-point rate hike in December, while noting that a 50-basis-point move could be considered given that core inflation reached the 0.3% threshold.

Interest rate futures currently price in a 90% probability of a 25-basis-point rate increase in December and a 10% chance of a 50-basis-point hike. Because a quarter-point adjustment is largely priced in, further US Dollar upside depends on market expectations shifting toward a larger rate hike. Upcoming US Producer Price Index (PPI) data and hawkish commentary from FOMC officials could act as catalysts to push Treasury yields and the Dollar higher.

Reduce lag and improve accuracy with the NonLagMA Expert Advisor. Discover it.

Eurozone Growth Concerns and French Political Risks

In contrast, the Euro remains constrained by fiscal issues in France and a cautious outlook from the European Central Bank. Money markets currently assign a 78% probability to a 25-basis-point deposit rate hike at the ECB's December meeting. However, analysts at Rabobank highlight growing concerns among Governing Council members regarding weak economic growth, suggesting limited scope for additional rate hikes. Political uncertainty surrounding next year's French presidential election also poses a headwind, leading Rabobank to project EUR/USD weakening toward 1.10 over the next three months.

EUR/USD Technical Analysis

From a technical perspective, the EUR/USD daily chart reflects the formation of an Expanding Wedge pattern. A recent rebound from the 1.106 support level has allowed for a short-term upward correction. However, strong resistance at 1.1135 and 1.1150 is expected to cap upside momentum, offering potential opportunities for traders to establish or add to short positions in line with the broader bearish trend.

Thank you for reading. Level up your trading with proven RobotFX expert advisors – check them out now.