Euro falls to three-month low as hawkish Fed outlook weighs

On Tuesday, the euro (EUR) plunged to its lowest level in three months, trailing the U.S. dollar (USD) higher. The EUR/USD exchange rate settled at 1.1331, marking a 0.35% decline for the day. This decline came as lower-than-anticipated U.S. economic data failed to deter the dollar's strength, with traders concentrating on the impact of high oil prices on inflation and expectations of a hawkish Federal Reserve (Fed).

The U.S. Dollar Index (DXY), which measures the dollar's value against six key currencies, reached 101.50, a two-month high. Job openings in the U.S. decreased to 7.079 million in August, below the expected 7.23 million, indicating a slight slowdown in labor demand. However, job openings remained robust compared to historical levels.

Consumer confidence in the U.S. fell to 81.9 in September, below the forecasted 89.0 and revised lower from 88.6 in August. The Federal Reserve's expectations of raising interest rates further in October and the prospect of higher inflation have driven U.S. Treasury yields to record highs, with the 10-year yield climbing to 5.28%, its highest since 2007. These factors have strengthened the U.S. dollar and widened the interest-rate gap between the U.S. and the Eurozone, thereby putting additional pressure on the euro.

Meanwhile, the European Central Bank (ECB) is also anticipated to increase interest rates this year, despite concerns about possible second-round effects from elevated energy costs. The focus in the coming days will be on the U.S. Personal Consumption Expenditures (PCE) Price Index, the ISM Manufacturing PMI, Nonfarm Payrolls (NFP), and preliminary Eurozone inflation data for September.