EUR/USD comes under pressure as Fed’s Williams warns of more interest rate hikes

The Euro (EUR) encountered slight selling pressure against the US Dollar (USD), reverting from a high of around 1.1400 to approximately 1.1380 as the Greenback climbed higher, following stern comments from New York Federal Reserve (Fed) Bank Chairman John Williams. The US Dollar Index (DXY), which measures the Dollar's value compared to six major currencies, ticked upward to near 101.17, nearing its eight-week peak of 101.23 observed on Wednesday.

Williams' remarks were notably more hawkish, as indicated by an FXS Speechtracker score of 7.2/10, which exceeded the 6.2/10 historical average, signifying a more restrictive monetary policy stance than the established norm. This tone emphasized "remarkable resilience" in the US economy, dwindling downside risks to full employment, robust AI-driven demand, and the assertion that an additional rate increase before year-end is "reasonable," all of which point to ongoing inflation worries and a clear inclination to maintain a tight monetary policy despite easing forward guidance.

The FXS Fed Sentiment Index dropped by 0.18 points to 148.63, reflecting a modest decrease in hawkishness, yet it continues to reside in the hawkish zone above 100, indicating that the broader Fed discourse still tends toward more restrictive policy even as doubts about the persistence of higher yields mount. Williams' hawkish statements have further propelled US Treasury Yields to new heights, with the 10-year bond reaching a 19-year peak at 5.14%.

Earlier, the Euro gained traction after the release of stronger-than-expected German IFO data for September, with the Business Climate Index surging to 89.9, surpassing expectations of 89.0 and the August figure of 88.9. The Current Assessment and Expectations indices also exceeded forecasts at 89.5 and 90.4, respectively. EUR/USD is trading at 1.1380, maintaining a bearish short-term outlook as the pair stays under the 20-period exponential moving average (EMA) at 1.1515, suggesting that the recent decline persists.

The Relative Strength Index (RSI) at 25.5 indicates oversold conditions, which might dampen the immediate downside force but has not yet signaled a clear rebound. The immediate resistance level is the 20-period EMA around 1.1515, and a daily close above this threshold would alleviate bearish pressure and pave the way for a more pronounced recovery.

Conversely, the pair faces the Year-To-Date (YTD) low at 1.1325 on the downside. Technical analysis was assisted by an AI tool for this report.