Insights 
VT 
The Euro strengthened against the Dollar, exceeding 1.16, following the Federal Reserve Chairman Jerome Powell’s comments. Powell’s “meeting-by-meeting” approach, focusing on labor risks over inflation pressures, influenced this change.
The decision by France to pause pension reforms contributed positively to the Euro. Meanwhile, tensions between the US and China adversely affected the Dollar, coinciding with a deterioration in US business sentiment.
US Dollar Index Falls
The US Dollar Index fell, losing 0.25% to reach 99.00. A lower NFIB Business Optimism Index, combined with a 7-point surge in the Uncertainty Index, marked concerning trends in US business outlook.
The likelihood of a rate cut at the Federal Reserve’s upcoming meeting increased, with a 97% probability for a 25-basis-point cut. In Germany, the ZEW Economic Sentiment indicator fell short of expectations, though it improved from the previous month.
Despite these trends, the EUR/USD pair remains technically bearish, trading below the 100-day Simple Moving Average. Continued economic updates, such as US inflation data, will be pivotal in shaping future movements.
The Federal Reserve’s dovish pivot is the dominant theme right now, with markets pricing in a 97% chance of a rate cut on October 29. We see this reflected in the EUR/USD pushing past the 1.1600 handle. Derivative strategies should focus on this clear momentum leading into the end of the month.
Powells Labor Market Focus
Powell’s focus on labor market risks is understandable given the latest Non-Farm Payrolls report for September 2025 showed job growth slowing to just 150,000. This, combined with the NFIB Uncertainty Index hitting its fourth-highest reading in over 50 years, justifies a cautious stance. We should expect the dollar to remain under pressure as long as this soft data continues.
While the Euro is benefiting, we are mindful of the European Central Bank’s own dovish signals and weak German ZEW data. The recent flash Harmonized Index of Consumer Prices (HICP) for the Eurozone came in at 2.5%, which is still above target but trending down. This suggests the Euro’s rally may have a ceiling, making this more of a “sell the dollar” trade than a “buy the Euro” one.
Given the conflicting signals and rising Sino-US tensions, we should anticipate higher volatility in the coming weeks. The upcoming US Consumer Price Index (CPI) on October 24 is a major event risk that could challenge the current dovish narrative. Buying straddles or strangles on EUR/USD could be a prudent way to position for a significant price move in either direction following that data release.
We must remember that after the aggressive rate hikes of 2022-2023, the Fed is data-dependent and Powell’s “meeting-by-meeting” stance is a key caveat. With US core inflation last reported at 3.5%, a surprisingly hot CPI report could force a rapid repricing of Fed expectations. Buying cheap, out-of-the-money EUR/USD put options with expiries after the Fed meeting offers a low-cost hedge against a hawkish surprise.
