Insights 
VT 
The Euro gains strength against the US Dollar as recent US CPI data dampened expectations for the US currency. Headline CPI rose 0.3% MoM, falling short of the 0.4% forecast, while core inflation slipped to 3.0% YoY. Markets anticipate almost 99% likelihood for another Fed rate cut at the October meeting, with further cuts likely in December.
At the time of reporting, EUR/USD trades around 1.1635, marking gains for the third consecutive day due to widespread weakening of the Greenback. The US Bureau of Labor Statistics revealed that CPI increased 0.3% MoM in September, missing projections, and down from August’s 0.4%. Annually, inflation increased 3.0%, slightly below expectations.
Core Inflation and Fed Expectations
Core CPI, excluding food and energy, rose 0.2% MoM, weaker than the 0.3% forecast. Yearly, core inflation was 3.0%, down from the predicted 3.1%. The report reinforced expectations for the Fed to continue easing as the labour market softens.
FedWatch tool shows a 98.9% probability of a 25-basis-point rate cut in October, with another predicted for December. The US Dollar Index fell below 99.00 post-release, and Treasury yields declined as confidence grew about nearing the end of Fed’s tightening cycle.
Upcoming data, including S&P Global PMI and University of Michigan Consumer Sentiment Index, will give further insights on the US economy’s health and Fed’s policy direction. The S&P Global Composite PMI indicates private-business activity, affecting GDP, industrial production, employment, and inflation expectations. This monthly indicator, when above 50, signals economic expansion favourable for the USD, while below 50, it indicates activity decline.
With the Federal Reserve almost certain to cut rates next week, we should anticipate continued US Dollar weakness against the Euro in the coming weeks. The September inflation report confirms the cooling trend we have been monitoring, solidifying the case for monetary easing. This environment makes long Euro positions particularly attractive.
Strategic Positioning in Forex Market
The S&P Global PMI data released earlier today came in at 53.2, falling short of expectations and dipping from last month’s 53.9. This further validates the narrative of a slowing US economy, adding pressure on the Fed to act. These weakening data points are a clear signal that the dollar’s momentum is fading.
We should consider buying at-the-money EUR/USD call options with November or December 2025 expiries. This strategy allows us to capitalize on the expected upward move in the pair while defining our maximum risk to the premium paid. The path of least resistance for EUR/USD appears to be higher as we approach the October 30th Fed decision.
This Fed pivot contrasts sharply with the European Central Bank, which we saw hold rates steady last month while citing stubborn core inflation near 3.5%. This policy divergence, where the Fed is easing while the ECB remains on hold, is a powerful tailwind for the Euro. Historically, such divergences have preceded sustained trends in currency pairs.
Looking back, this situation is reminiscent of the Fed’s policy shift in 2019, which led to a notable period of dollar underperformance. Similarly, the current data suggests the dollar’s yield advantage is set to narrow significantly. We should position for a potential retest of the 1.1800 level in EUR/USD before year-end.
Given that implied volatility is elevated ahead of the Fed meeting, using bull call spreads could be a prudent alternative. This would involve buying a call option and selling a higher-strike call to finance some of the cost. This approach reduces the initial cash outlay and can improve the trade’s probability of profit, albeit with a capped upside.
