EUR/USD Tumbles as Hawkish Fed Signals Weigh on Euro

The EUR/USD pair continues to trade in negative territory around 1.1360 during the early European session on Tuesday, pressured by surging US Treasury bond yields and hawkish signals from the Federal Reserve (Fed) officials.

Cleveland Fed President Beth Hammack emphasized that inflation risks remain high, and restrictive monetary policy should be maintained, while Fed Governor Michael Barr stated that 'further policy adjustments are likely to be needed' to get inflation under control.

As a result, markets are now pricing in nearly a 70.3% probability of a quarter-point rate hike from the Fed at the October meeting, with traders almost fully pricing in four quarter-point hikes over the next 12 months.

The persistent Dollar strength has forced down EUR/USD projections this year, according to analysts at Societe Generale, who note that positioning may be even more skewed than published forecasts imply.