EUR/USD dropped below 1.1419 and 1.14072 as the dollar rallied on rising Treasury yields. A jump in US business activity and a string of hawkish Fed remarks pushed the market-implied odds of an October rate hike to 72%, up from about 50% a day earlier.
EUR/USD fell below the 1.1419 and 1.14072 support levels as the dollar strengthened broadly against major currencies. The move tracks a sharp rise in Treasury yields, which is making dollar-denominated assets more attractive to investors seeking a better return.
Strong PMI adds to the dollar's case
The flash S&P Global US composite PMI jumped to 58.4 from 56.0 in August, its highest reading since July 2021. Services led the advance and hiring strengthened, though businesses also reported higher input costs and longer supply delays. Strong growth gives the Federal Reserve room to raise rates again, and continued price pressure gives it a reason to consider doing so.
Fed officials reinforce a hawkish tone
Richmond Fed President Tom Barkin said inflation risks outweigh employment risks and that the economy may be firming. Boston Fed President Susan Collins backed last week's hike and said policy needs to stay more restrictive to bring inflation back to 2%. Chicago Fed President Austan Goolsbee has warned that strong demand may be adding to price pressure from energy and other supply shocks.
Fed Governor Michael Barr, a voting FOMC member, added to that message. According to investingLive: "out of position" is how he described the Fed's stance before last week's hike, saying further policy adjustments will likely be needed in his base case.
Rate-hike odds jump ahead of October meeting
The market now sees about a 72% chance of a hike at the October meeting, up from around 50% yesterday. That repricing helps explain the move higher in Treasury yields and in the dollar. The Fed meets on October 27-28, ahead of the November elections, and President Trump has called for lower rates and criticized last week's hike.
On the downside, traders are watching 1.1377 and 1.13634, followed by the July low at 1.13525 and the June low at 1.13243. A stronger dollar generally pushes EUR/USD lower, and close risk for the pair sits at 1.1419.
Source: Investinglive
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