Euro consolidates near three-month lows amid high Oil prices, Fed hiking bets

The Euro has stabilized near its three-month low against the US Dollar, hovering around 1.1380, following a drop of 0.8% this week and a decline of nearly 2% over the past two weeks. The US Dollar has gained strength due to aggressive Federal Reserve hawkish statements and rising US Treasury yields, while the recent surge in Oil prices adds pressure to the Euro.

Eurozone economic data released on Friday did not provide support for the common currency, as the German GfK Consumer Confidence Index for October fell to -30.6, the lowest in five months, from -26.6 in the previous month, surpassing market expectations of a less severe decline to -27.4. German consumers are facing challenges due to higher energy prices.

The Income expectations sub-index dropped to -15.0 from 1.7 in September, and consumers increased their saving propensity to 21.5 from 15.5 in the prior month, with a decline in planned purchases. High Oil prices, currently trading just below the $100 mark, strain oil-importing Eurozone economies. Meanwhile, the US Dollar outperforms its competitors, with market expectations pointing to additional interest rate hikes in the coming months.

US PMI data from this week indicated stronger-than-anticipated business activity in September, with wage growth and rising energy costs contributing to the data. This information bolstered expectations of additional Fed rate hikes to prevent overheating of the US economy. Philadelphia Fed President Anna Paulson and New York Fed President John Williams both echoed these sentiments, suggesting that modest rate increases are probable to bring inflation under control.

Earlier, the New York Fed President John Williams had emphasized the likelihood of another rate increase by the end of the year. Analysts at OCBC note that market pricing suggests a 70% probability of an additional 25 basis point rate hike in October, indicating the market's increasing confidence that the Fed's inflation fight is far from over.

The GfK Consumer Confidence Index is a leading indicator that reflects consumer confidence in economic activity, with high readings supporting economic growth and low readings signaling potential economic contraction. In general, a high reading is favorable for the Euro, while a low reading is unfavorable.