Fed's Hawkish Shift Sends EUR/USD to Multi-Month Lows
The Federal Reserve's (Fed) decision to hike interest rates for the first time in over three years has put pressure on the euro, causing it to break down to multi-month lows against the US dollar.
The unanimous vote was seen as a hawkish shift in monetary policy, validating market expectations of higher-for-longer pricing across the curve. The updated economic projections showed stronger growth and lower unemployment, but also firmer inflation, which contributed to the Fed's decision.
Front-end yields surged, driving a sharp bear flattening of the US Treasury curve, with the 2s-30s differential narrowing from 72.3bp immediately before the decision to 62.5bp afterwards. The US dollar strengthened rapidly, placing pressure on all G10 FX names, including the euro.
EUR/USD broke down through support at 1.1480 and hit levels not seen since late July, with the immediate level to watch overhead being this former support. If it is retested and failed, it could provide an opportunity to establish shorts with a tight stop above the level for protection.