EUR/USD: Will the Fed raise the Fed Funds level by 50 points in December?

The dollar regained strength yesterday following the release of inflation figures that exceeded expectations. The EUR/USD spot rate is now hovering near lows not seen since the spring of 2025.

In the United States, consumer prices rose by 0.4% month-on-month. Core inflation - which excludes energy and food prices - increased by 0.3%. Economists surveyed by The Wall Street Journal had projected gains of 0.3% and 0.2%, respectively.

"The monthly data did little to ease concerns, as both headline and core inflation came in above expectations. Markets are already pricing in an all-but-certain initial interest rate hike by the Federal Reserve (Fed) next month, followed by a second increase by March 2027 - totaling two hikes. This report only strengthens the case for monetary tightening," noted Bret Kenwell, a U.S. market analyst at eToro.

"Following a strong employment report, the fact that core inflation has exceeded expectations for the third consecutive time will reinforce the monetary policy committee members' desire to raise key interest rates in December. However, the persistence of high core inflation raises the real question of what they might do in early 2027," observed Bastien Drut, an economist at CPR AM.

The CME Group's FedWatch tool puts the probability of an interest rate hike on 9 December at 100%, with an 86.3% chance of a 25-basis-point increase and a 13.8% chance of a 50-basis-point increase. In the background, the single currency remains weighed down by the budgetary situation in France - the "dumb pupil" of the Eurozone. According to economists at Asteres, "To break out of this trend, France needs robust growth. This would reassure markets regarding debt sustainability, reduce the risk premium on French borrowing, and, over time, lower financing costs for both the state and businesses. However, such growth must be driven by sustainable engines: productive investment, industry, and innovation."

Right now, the EUR/USD is trading at $1.10970.

KEY TECHNICAL FACTORS
We are resuming our short positions on this major currency pair - positions that will be reinforced should the price break below the support level of $1.1110.

MEDIUM-TERM FORECAST
Based on the key technical factors mentioned, our outlook for the EUR/USD is negative in the medium term.

Our entry point is $1.1134. The target price for our bearish scenario is $1.0735. To protect your capital, we recommend placing a stop-loss order at $1.1291.

The potential profit for this strategy is 399 pips, while the risk of loss is 157 pips.