USD Strengthens as December Fed Rate Cut Odds Collapse Below 30%

Federal Reserve hawks reshape market expectations

The EUR/USD exchange rate has surrendered further ground, with the pair now testing critical support near 1.1500 after a notable reversal from Wednesday’s highs around 1.1600. This downside pressure reflects a significant shift in market sentiment surrounding potential interest rate cuts, particularly the widely-awaited December policy decision.

The catalyst for this currency repricing emerged from Wednesday’s release of October’s Federal Open Market Committee (FOMC) Minutes. The document revealed considerable hawkish sentiment among Fed policymakers, with many officials expressing skepticism about consecutive rate reductions due to lingering inflation concerns and the need to maintain public confidence in the central bank’s anti-inflation efforts. This dovish-to-hawkish recalibration has fundamentally altered traders’ positioning.

Market Odds Shift Dramatically

According to the CME Group’s FedWatch tool, the probability of a 25 basis point rate cut at the December 10 meeting has compressed to just below 30%, representing a sharp decline from 50% just one day earlier and dramatically below the 90% probability recorded a month ago. This dramatic repricing underscores how swiftly market expectations can reverse when central bank communications turn hawkish.

The US Dollar has capitalized on this shifting outlook, maintaining strength across a broad basket of currencies. However, the technical picture for EUR/USD presents an intriguing dynamic—the 4-hour Relative Strength Index (RSI) has entered oversold territory, suggesting that despite the fundamental bearishness, some consolidation or corrective bounce remains possible.

Thursday’s Economic Roadmap

Market participants are now bracing for the release of September’s delayed Nonfarm Payrolls report, which serves as the primary event risk for Thursday. Consensus estimates point to a net employment gain of 50,000 positions, following August’s modest 22,000 increase. Average hourly earnings are projected to rise 0.3% month-over-month and 3.7% year-over-year—matching August’s pace—while the unemployment rate is expected to hold steady at 4.3%.

On the Eurozone front, preliminary November Consumer Confidence data from the European Commission may offer some directional clues for the Euro, though sentiment improvements have struggled to provide meaningful support to EUR recently. The Philadelphia Fed Manufacturing Survey will also deserve attention, with expectations for a -3.1 reading in November, an improvement from October’s -12.8 but still signaling contraction.

Technical Levels Command Attention

From a technical standpoint, EUR/USD bears have firmly established control. The pair’s rejection near 1.1650 last week set the stage for the current decline, with 1.1500 now representing the immediate psychological support level. Should selling pressure persist, the next technical floor appears at the November 5 lows around 1.1470, followed by the 4-hour bearish channel bottom near 1.1430.

A recovery would need to clear the November 18-19 highs in the 1.1600 zone to gain credibility, with the bearish channel resistance now positioned near 1.1630. Only a decisive break above this area—unlikely given current fundamental conditions—would target the October 28-29 highs near 1.1670.

The broader narrative remains clear: until Federal Reserve messaging shifts more dovish or employment data disappoints significantly, the EUR/USD will likely remain under pressure as traders reassess their December rate cut assumptions. The oversold RSI reading provides the lone technical counterweight to what is otherwise a solidly bearish setup.