EUR/USD Tumbles to Two-Month Low as Fed Rate Hike Expectations Rise

The EUR/USD pair has been declining for four consecutive days, reaching its lowest level in two months. The current price is around 1.1372, and the US Dollar Index (DXY) is hovering near 101.27 after touching a high of 101.35 on July 29th.

The market's expectations of another rate hike by the Federal Reserve in October have contributed to the dollar's strength. According to the CME FedWatch Tool, the probability of this event has increased to around 65%, up from 55% last week.

Despite stronger-than-expected German Ifo data providing some support to the euro, the broader dollar strength persists. The US Treasury yields have reached multi-year highs due to elevated oil prices and hawkish repricing, with the 10-year yield touching 5.15%, a level not seen since 2007.

Central banks' inflation targets remain at 2%, while the Federal Reserve maintains eight policy meetings per year via the FOMC. The Fed's Quantitative Tightening (QT) policy typically has a dollar-positive effect, which may be influenced by the current market conditions.